What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-06 compared with 2020-08-06 · 101 added, 118 removed, 204 unchanged (52% 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, 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 ongoing coronavirus disease 2019 (“COVID-19”) pandemic, including the effects of related public health concerns and the impact of continued 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 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.

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 period ended December 31, 2019 (the “2019 Form 10-K”).

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 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.

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

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.

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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.

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.

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 and reductions to its operating plans as a result of decreased prices and reduced storage capacity.

Demand and pricing may again decline if there is a 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.

2 unchanged sentences

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.

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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 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.

Magnolia did not bring any operated wells online during the third quarter and continued to operate one rig in the Giddings area.

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.

Moreover, Magnolia does not have any contractual drilling obligations and nearly all of 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.

4 unchanged sentences

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.

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.

The Company 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 relied on such persons having sufficient access to its information technology systems, including through telecommunication hardware, software, and networks.

Magnolia's board of directors is continuing to monitor the unfolding COVID-19 pandemic very closely as well as the effect of working remotely on internal controls over financial reporting and information technology 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.

As of October 1, 2020, the substantial majority of Magnolia employees have returned to the office.

Business Overview

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.

As of September 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 635,336 gross (437,128 net) acres in the Giddings area.

As of September 30, 2020, Magnolia held an interest in approximately 1,823 gross (1,189 net) wells, with total production of 62.2 thousand barrels of oil equivalent per day (“Mboe/d”) for the nine months ended September 30, 2020.

In the third 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 $7.41 per diluted common share, for the nine months ended September 30, 2020.

As a result of the sharp decline in commodity prices during the nine months ended September 30, 2020, Magnolia recorded impairments of $1.9 billion related to proved and unproved properties.

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 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.

As of September 30, 2020, the Company had repurchased 3.1 million shares under the plan at an aggregate cost of $23.2 million.

On August 1, 2020, the Company provided written notice to EVOC of its intent to terminate the Services Agreement.

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

In the third quarter of 2020, the Company entered into costless collars for 4.6 million MMBtu and 12.2 million MMBtu of its natural gas production in the years ending December 31, 2020 and 2021, respectively, which reduce the Company’s exposure to natural gas price volatility for a portion of its expected natural gas production volumes.

The Company has elected not to designate any of its derivative instruments as hedging instruments.

Accordingly, changes in the fair value of the Company's derivative instruments are recorded immediately to earnings as “Loss on derivative instruments, net” on the Company’s consolidated statement of operations.

For the three and nine months ended September 30, 2020, the Company recognized $2.2 million unrealized loss related to its derivative instruments.

Results of Operations

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• 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;

• 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.

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

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

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

Oil, Natural Gas and NGL Sales Revenues.

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Three Months Ended

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

June 30, 2019

(In thousands, except per unit data) September 30, 2020 September 30, 2019

Oil (MBbls) 2,485 3,520

15 unchanged sentences

NGLs (per barrel) 11.20 12.62

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.

Oil revenues were 79% and 85% of the Company’s total revenues for the three months ended September 30, 2020 and 2019, respectively.

Oil production was 50% and 54% of total production volume for the three months ended September 30, 2020 and 2019, respectively.

Oil revenues for the three months ended September 30, 2020 were $112.2 million lower than the three months ended September 30, 2019.

A 35% decrease in average prices reduced third quarter 2020 revenues by $72.4 million compared to the same period in the prior year, while a 29% decrease in oil production reduced revenues by $39.8 million.

Natural gas revenues were 12% and 9% of the Company's total revenues for the three months ended September 30, 2020 and 2019, respectively.

Natural gas production was 31% and 27% of total production volume for the three months ended September 30, 2020 and 2019, respectively.

Natural gas revenues for the three months ended September 30, 2020 were $6.3 million lower than the three months ended September 30, 2019.

A 20% decrease in average prices reduced third quarter 2020 revenues by $4.2 million compared to the same period in the prior year, while a 12% decrease in natural gas production reduced revenues by $2.1 million.

NGL revenues were 9% and 6% of the Company’s total revenues for the three months ended September 30, 2020 and 2019, respectively.

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

NGL revenues for the three months ended September 30, 2020 were $5.2 million lower than the three months ended September 30, 2019.

An 11% decrease in average prices reduced third quarter 2020 revenues by $1.7 million compared to the same period in the prior year, while a 25% decrease in NGL production reduced revenues by $3.5 million.

Operating Expenses and Other Income (Expense) .

1 unchanged sentence

Three Months Ended

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

June 30, 2019

(In thousands, except per unit data) September 30, 2020 September 30, 2019

Operating Expenses:

3 unchanged sentences

Exploration expenses 701 3,924

Asset retirement obligations accretion 1,464 1,373

Asset retirement obligation accretion 1,501 1,394

Depreciation, depletion and amortization 44,731 143,894

1 unchanged sentence

General and administrative expenses 16,663 17,345

Transaction related costs — 85

Total operating costs and expenses $ 99,126 $ 217,130

2 unchanged sentences

Interest expense, net (7,333) (6,896)

Loss on derivatives, net (2,208) —

Other expense, net (51) 21

5 unchanged sentences

Exploration expense 0.14 0.60

Impairment of oil and natural gas properties — —

Asset retirement obligation accretion 0.30 0.21

2 unchanged sentences

General and administrative expenses 3.34 2.64

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.

Lease operating expenses for the three months ended September 30, 2020 compared to the corresponding 2019 period were $5.5 million lower primarily due to a reduction of operating expenses associated with bringing fewer new wells online resulting in lower production.

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.

The gathering, transportation, and processing costs for the three months ended September 30, 2020 were $3.5 million, or $0.25 per boe, lower than the three months ended September 30, 2019 primarily due to lower natural gas production and prices.

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 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.

Taxes other than income were $6.0 million, or $0.56 per boe, lower for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to a decrease in revenues following a 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

The exploration costs for the three months ended September 30, 2020 were $3.2 million, or $0.46 per boe, lower than the three months ended September 30, 2019 primarily due to lower seismic surveying costs.

Depreciation, depletion and amortization (“DD&A”) during the three months ended September 30, 2020 was $99.2 million, or $12.99 per boe, lower than the three months ended September 30, 2019 primarily as a 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 September 30, 2020 were $0.7 million lower than the three months ended September 30, 2019 primarily driven by renegotiating the fee under the Services Agreement as well as other corporate-wide cost cutting initiatives.

Loss on derivatives, net was a $2.2 million unrealized loss related to the Company’s natural gas costless collar entered into during the third quarter of 2020.

There was no derivative activity in the corresponding 2019 period.

Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019

Oil, Natural Gas and NGL Sales Revenues.

2 unchanged sentences

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

Nine Months Ended

(In thousands, except per unit data) September 30, 2020 September 30, 2019

Oil (MBbls) 8,965 9,615

15 unchanged sentences

NGLs (per barrel) 9.30 15.11

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.

Oil revenues were 81% and 83% of the Company’s total revenues for the nine months ended September 30, 2020 and 2019, respectively.

Oil production was 53% of total production volume for each of the nine months ended September 30, 2020 and 2019.

Oil revenues for the nine months ended September 30, 2020 were $272.9 million lower than the nine months ended September 30, 2019.

A 43% decrease in average prices reduced revenues for the nine months ended September 30, 2020 by $250.3 million compared to the same period in the prior year, while a 7% decrease in oil production reduced revenue $22.6 million.

Natural gas revenues were 11% and 10% of the Company's total revenues for the nine months ended September 30, 2020 and 2019, respectively.

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

Natural gas revenues for the nine months ended September 30, 2020 were $27.0 million lower than the nine months ended September 30, 2019.

A 35% decrease in average prices reduced revenues for the nine months ended September 30, 2020 by $25.0 million as compared to the same period in the prior year, while a 4% decrease in natural gas production reduced revenue $2.0 million.

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

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

NGL revenues for the nine months ended were September 30, 2020 $21.3 million lower than the nine months ended September 30, 2019.

A 38% decrease in average prices reduced revenues for the nine months ended September 30, 2020 by $19.7 million as compared to the same period in the prior year, while a 5% decrease in NGL production reduced revenue $1.6 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

Nine Months Ended

(In thousands, except per unit data) September 30, 2020 September 30, 2019

Operating Expenses:

4 unchanged sentences

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

Asset retirement obligations accretion 2,902 2,701

Asset retirement obligation accretion 4,403 4,095

Depreciation, depletion and amortization 238,273 385,942

6 unchanged sentences

Interest expense, net (21,345) (21,611)

Loss on derivatives, net (2,208) —

Other expense, net (510) 8

11 unchanged sentences

Transaction related costs — 0.02

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 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.

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 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 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.

Lease operating expenses for the nine months ended September 30, 2020 were $9.5 million, or $0.32 per boe, lower than the nine months ended September 30, 2019 primarily due to the suspension of completion activity and reduction of operating expenses associated with bringing fewer new wells online.

Gathering, transportation, and processing costs for the nine months ended September 30, 2020 were $5.4 million, or $0.23 per boe, lower than the nine months ended September 30, 2019 primarily due to lower natural gas production and prices.

Taxes other than income and related cost per boe were $18.0 million, or $0.92 per boe, lower for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to a decrease in revenues following a decline in commodity prices.

Exploration costs for the nine months ended September 30, 2020 were $553.6 million, or $32.50 per boe, higher than the nine months ended September 30, 2019 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 6 — Fair Value Measurements in the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q.

For the nine months ended September 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.

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.

For more information, please see Note 6 — Fair Value Measurements in the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q.

DD&A during the nine months ended September 30, 2020 was $147.7 million, or $7.35 per boe, lower than the nine months ended September 30, 2019 as a result of lower asset property balances associated with proved property impairments recorded in the first quarter of 2020.

G&A expenses during the nine months ended September 30, 2020 were $2.2 million lower than the nine months ended September 30, 2019 primarily driven by a decrease in professional service fees and a reduction in the fee under the Services Agreement as a result of corporate-wide cost cutting initiatives.

Loss on derivatives, net was a $2.2 million unrealized loss related to the Company’s natural gas costless collar entered into during the third quarter of 2020.

There was no derivative activity in the corresponding 2019 period.

Liquidity and Capital Resources

6 unchanged sentences

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 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.

As of September 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 September 30, 2020, the Company had $598.5 million of liquidity comprised of the $450.0 million of borrowing base capacity of the RBL Facility, which was reaffirmed on October 15, 2020, and $148.5 million of cash and cash equivalents.

Cash and Cash Equivalents

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

At September 30, 2020, Magnolia had $148.5 million of cash and cash equivalents.

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

3 unchanged sentences

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

Six Months Ended

(In thousands) June 30, 2020

June 30, 2019

Nine Months Ended

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

Sources of cash and cash equivalents

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Changes in working capital associated with additions to oil and natural gas properties (18,972) (13,392)

Class A Common Stock repurchase (6,483) —

Class A Common Stock repurchases (12,962) (9,722)

Other (2,138) (3,629)

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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 $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.

Net cash provided by operating activities totaled $231.0 million and $488.6 million for the nine months ended September 30, 2020 and 2019, respectively.

During the nine months ended September 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 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.

During the nine months ended September 30, 2020, the Company completed various leasehold and property acquisitions, primarily comprised of a $69.7 million acquisition of certain non-operated oil and natural gas assets located in Karnes and DeWitt Counties, Texas.

During the nine months ended September 30, 2019, the Company incurred $93.2 million of acquisition costs, comprised of the Highlander acquisition, and other acquisitions of additional oil and natural gas assets in Karnes County.

Additions to Oil and Natural Gas Properties

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

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

Three Months Ended Nine Months Ended

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

Drilling and completion $ 27,425 $ 88,384 $ 155,308 $ 344,179

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Total capital expenditures $ 27,674 $ 89,670 $ 157,325 $ 352,735

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.

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

The activity during the three and nine months ended September 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.

Capital Requirements

Repurchase of Class A Common Stock

Repurchases 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.

No shares were repurchased during the second quarter of 2020.

During the nine months ended September 30, 2020 and 2019, the Company repurchased 2.1 million and 1.0 million shares for a total cost of approximately $13.0 million and $9.7 million, respectively.

Off-Balance Sheet Arrangements

As of June 30, 2020, there were no off-balance sheet arrangements.

As of September 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