What changed in this filing

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Item 1. Financial Statements

2021-05-05 compared with 2020-11-06 · 176 added, 218 removed, 327 unchanged (55% of the section changed)

3 unchanged sentences

(In thousands)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

ASSETS (Unaudited) (Audited)

13 unchanged sentences

Deferred financing costs, net 5,465 6,042

Equity method investment 21,789 19,730

Intangible assets, net 7,233 9,346

Other long-term assets 6,130 6,979

Total other assets 18,828 22,367

TOTAL ASSETS $ 1,455,848 $ 1,453,420

8 unchanged sentences

Asset retirement obligations, net of current 89,209 88,232

Deferred taxes, net — 77,834

Other long-term liabilities 5,244 5,702

3 unchanged sentences

Class A Common Stock, $ 0.0001 par value, 1,300,000 shares authorized, 183,540 shares issued and 176,093 shares outstanding in 2021 and 168,755 shares issued and 163,280 shares outstanding in 2020

Class B Common Stock, $ 0.0001 par value, 225,000 shares authorized, 85,790 shares issued and outstanding in 2020 and 2019

Class B Common Stock, $ 0.0001 par value, 225,000 shares authorized, 66,624 shares issued and outstanding in 2021 and 85,790 shares issued and outstanding in 2020

Additional paid-in capital 1,731,234 1,712,544

1 unchanged sentence

( 59,239 ) ( 38,958 )

Retained earnings (Accumulated deficit) ( 1,153,195 ) 82,940

Accumulated deficit ( 1,062,206 ) ( 1,125,450 )

Noncontrolling interest 234,198 291,260

Total equity 844,012 839,422

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,455,848 $ 1,453,420

3 unchanged sentences

(In thousands, except per share data)

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Three Months Ended

March 31, 2021 March 31, 2020

Oil revenues $ 146,413 $ 154,686

8 unchanged sentences

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

Asset retirement obligation accretion 1,501 1,394 4,403 4,095

Asset retirement obligations accretion 1,331 1,438

Depreciation, depletion and amortization 42,944 142,671

1 unchanged sentence

General and administrative expenses 20,364 18,080

Transaction related costs — — — 438

Total operating costs and expenses 99,126 217,130 2,353,602 601,615

Total operating expenses 107,767 2,145,701

OPERATING INCOME (LOSS) 99,896 ( 1,964,336 )

3 unchanged sentences

Loss on derivatives, net ( 482 ) —

Other income (expense), net ( 51 ) 21 ( 510 ) 8

Total other income (expense) ( 8,585 ) ( 6,783 ) ( 22,004 ) ( 20,995 )

Other expense, net ( 229 ) ( 472 )

Total other expense, net ( 8,005 ) ( 6,789 )

INCOME (LOSS) BEFORE INCOME TAXES 91,891 ( 1,971,125 )

2 unchanged sentences

Net income (loss) attributable to noncontrolling interest 28,248 ( 668,289 )

NET INCOME ATTRIBUTABLE TO MAGNOLIA 9,147 10,547 ( 1,236,135 ) 42,079

Non-cash deemed dividend related to warrant exchange — 2,763 — 2,763

NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON STOCK $ 63,244 $ ( 1,227,010 )

10 unchanged sentences

Common Stock Class B

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

Common Stock Additional Paid In Capital Treasury Stock Retained Earnings/ Accumulated Deficit Total Stockholders’ Equity Noncontrolling Interest Total

Shares Value Shares Value Shares Value

2 unchanged sentences

Changes in ownership interest adjustment — — — — ( 970 ) — — — ( 970 ) 970 —

Final settlement adjustment related to Business Combination ( 496 ) — ( 1,556 ) — ( 6,095 ) — — — ( 6,095 ) ( 19,150 ) ( 25,245 )

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

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

Stock based compensation expense — — — — 2,829 — — — 2,829 — 2,829

Changes in ownership interest adjustment — — — — 28,215 — — — 28,215 ( 36,715 ) ( 8,500 )

Common stock issued in connection with warrants exchange 9,179 1 — — 1,624 — — ( 2,763 ) ( 1,138 ) — ( 1,138 )

Common stock issued related to stock based compensation, net 154 — — — ( 298 ) — — — ( 298 ) ( 154 ) ( 452 )

Common stock repurchased — — — — — 950 ( 9,722 ) — ( 9,722 ) — ( 9,722 )

Class A Common Stock repurchase — — — — — 1,000 ( 6,483 ) — ( 6,483 ) — ( 6,483 )

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

Net income — — — — — — — 10,547 10,547 6,810 17,357

Balance, September 30, 2019 168,260 $ 17 91,790 $ 9 $ 1,704,652 950 $ ( 9,722 ) $ 74,823 $ 1,769,779 $ 1,014,174 $ 2,783,953

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)

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

Common Stock Class B

Common Stock Additional Paid In Capital Treasury

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

Common Stock Additional Paid In Capital Treasury Stock Accumulated Deficit Total Stockholders’ Equity Noncontrolling Interest Total

Shares Value Shares Value Shares Value

4 unchanged sentences

Class A Common Stock repurchases — — — — — 1,973 ( 20,281 ) — ( 20,281 ) — ( 20,281 )

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

Stock based compensation expense — — — — 2,927 — — — 2,927 — 2,927

Changes in ownership interest adjustment — — — — 175 — — — 175 ( 175 ) —

Common stock issued related to stock based compensation and other, net 89 — — — ( 180 ) — — — ( 180 ) — ( 180 )

Class A Common Stock repurchases — — — — — 1,100 ( 6,480 ) — ( 6,480 ) — ( 6,480 )

Class B Common Stock purchase and cancellation — — ( 5,000 ) ( 1 ) 1 — — — — ( 50,781 ) ( 50,781 )

Non-compete settlement 375 — — — ( 11,231 ) — — — ( 11,231 ) ( 5,921 ) ( 17,152 )

Conversion of Class B Common Stock to Class A Common Stock 14,166 1 ( 14,166 ) ( 1 ) — — — — — — —

Distributions to noncontrolling interest owners — — — — — — — — — ( 155 ) ( 155 )

Net Income — — — — — — — 63,244 63,244 28,248 91,492

Balance, September 30, 2020 168,676 $ 17 85,790 $ 9 $ 1,709,043 3,100 $ ( 23,240 ) $ ( 1,153,195 ) $ 532,634 $ 279,547 $ 812,181

Balance, March 31, 2021 183,540 $ 18 66,624 $ 7 $ 1,731,234 7,448 $ ( 59,239 ) $ ( 1,062,206 ) $ 609,814 $ 234,198 $ 844,012

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

2 unchanged sentences

( In thousands)

Nine Months Ended

September 30, 2020 September 30, 2019

Three Months Ended

March 31, 2021 March 31, 2020

CASH FLOWS FROM OPERATING ACTIVITIES

5 unchanged sentences

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

Asset retirement obligation accretion 4,403 4,095

Asset retirement obligations accretion 1,331 1,438

Amortization of deferred financing costs 910 896

Loss on derivatives, net 482 —

Deferred tax expense (benefit) ( 77,834 ) 11,765

Deferred taxes — ( 74,654 )

Stock based compensation 2,705 2,879

8 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of EnerVest properties — 4,250

Acquisitions, other ( 558 ) ( 69,390 )

4 unchanged sentences

CASH FLOW FROM FINANCING ACTIVITIES

Contributions from noncontrolling interest owners — 7,301

Distributions to noncontrolling interest owners ( 155 ) ( 284 )

Class A Common Stock repurchases ( 20,281 ) ( 6,483 )

Class B Common Stock purchase and cancellation ( 50,781 ) —

Non-compete settlement ( 17,152 ) —

Other financing activities ( 1,267 ) ( 452 )

9 unchanged sentences

Accruals or liabilities for capital expenditures $ 14,624 $ 47,903

Equity issuances in connection with acquisitions — 33,693

Non-cash deemed dividend related to warrant exchange — 2,763

Supplemental non-cash lease operating activity:

22 unchanged sentences

Summary of Significant Accounting Policies

As of September 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 2019 Form 10-K, 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 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.

Magnolia adopted this standard on January 1, 2020.

The standard changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, and requires entities to use a new forward-looking expected loss model that will result in earlier recognition of allowance for losses.

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

The majority of these receivables have payment terms of 30 days or less.

For receivables due from joint interest owners, the Company generally has the ability to withhold future revenue disbursements to recover non-payment of joint interest billings.

From an evaluation of the Company’s existing credit portfolio, historical credit losses have been de minimis and are expected to remain so in the future assuming no substantial changes to the business or creditworthiness of Magnolia’s business partners.

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

As of March 31, 2021, 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 2020 Form 10-K.

Recent Accounting Pronouncements

On August 26, 2020, the SEC adopted amendments to its rules in Regulation S-K to streamline the disclosures, which registrants are required to make about business, legal proceedings and risk factors and to add new requirements for disclosures about human capital resources.

The amendments take a principles-based approach that gives registrants flexibility to tailor disclosures to their circumstances.

The final rules become effective November 9, 2020 and will be incorporated in the Company’s Annual Report on Form 10-K for the period ending December 31, 2020.

In December 2019, the FASB issued ASU No.

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update No.

2019-12, Income Taxes (Topic 740):

1 unchanged sentence

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.

In May 2020, the SEC adopted final rules that amend the financial statement disclosure requirements for significant business acquisitions and dispositions.

Among other changes, the final rules modify the significance tests and improve the disclosure requirements for acquired or to be acquired businesses and related pro forma financial information, the periods those financial statements must cover, and the form and content of the pro forma financial information.

The final rules do not modify requirements for the acquisition and disposition of significant amounts of assets that do not constitute a business.

The final rules are effective January 1, 2021, but earlier compliance is permitted.

The Company plans to comply with the final rules during 2020, if applicable.

The Company adopted this standard on a prospective basis on January 1, 2021.

The adoption of this guidance did not have any material impact on the Company’s financial position, cash flows, or results 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 are primarily comprised of 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 and reflected 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 $ 52.3 million as of September 30, 2020 and $ 100.4 million as of December 31, 2019.

Receivables from contracts with customers totaled $ 95.2 million as of March 31, 2021 and $ 72.0 million as of December 31, 2020.

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.

1 unchanged sentence

The Company considers a variety of facts and circumstances in assessing the point of control transfer, including, but not limited to:

the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, the Company’s right to payment, and transfer of legal title.

whether the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, the Company’s right to payment, and the transfer of legal title.

The Company does not disclose the value of unsatisfied performance obligations for contracts as all contracts have either an original expected length of one year or less, or the entire future consideration is variable and allocated entirely to a wholly unsatisfied performance obligation.

2 unchanged sentences

The transaction was accounted for as an asset acquisition.

2019 Acquisitions

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

The transaction was accounted for as an asset acquisition.

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 natural gas well located in St.

Martin Parish, Louisiana and 31.1 million royalty trust units in the Gulf Coast Ultra Deep Royalty Trust from McMoRan Oil & Gas, LLC.

Highlander paid cash consideration of $ 50.9 million for such interests.

MGY Louisiana LLC, a wholly owned subsidiary of Magnolia Operating, holds approximately 85 % of the units in Highlander.

The transaction was accounted for as an asset acquisition.

Derivative Instruments

6 unchanged sentences

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 derivatives, net” on the Company’s consolidated statement of operations.

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

There were no cash settlements or realized gains or losses on the Company’s derivative instruments during the three and nine months ended September 30, 2020 and 2019.

The Company had the following outstanding derivative contracts in place as of September 30, 2020:

For the three months ended March 31, 2021, the Company recognized a $ 0.5 million unrealized loss related to its derivative instruments.

There were no cash settlements or realized gains or losses on the Company’s derivative instruments during the three months ended March 31, 2021 and 2020.

The Company had the following outstanding derivative contracts in place as of March 31, 2021:

Natural gas costless collars:

2 unchanged sentences

Weighted average ceiling price ($/MMBtu) $ 3.00

See Note 6 — F air Value Measurem ent for the fair value hierarchy of the Company’s derivative contracts.

See Note 6 — Fair Value Measurement for the fair value hierarchy of the Company’s derivative contracts.

Fair Value Measurements

9 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 September 30, 2020 and December 31, 2019 is as follows:

September 30, 2020 December 31, 2019

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, 2021 and December 31, 2020 is as follows:

March 31, 2021 December 31, 2020

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

Long-term debt $ 391,448 $ 413,500 $ 391,115 $ 407,500

The fair value of the 2026 Senior Notes at September 30, 2020 and December 31, 2019 is 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.

The fair value of the 2026 Senior Notes at March 31, 2021 and December 31, 2020 is based on unadjusted quoted prices in an active market, which is considered a Level 1 input in the fair value hierarchy.

Non-financial assets and liabilities initially measured at fair value include assets acquired and liabilities assumed in business combinations and asset retirement obligations.

Derivative Instruments

The fair value of the Company’s natural gas costless collar derivative instruments are measured using an industry-standard pricing model and are provided by a third party.

The fair values of the Company’s natural gas costless collar derivative instruments are measured using an industry-standard pricing model and are provided by a third party.

The inputs used in the third-party pricing model include quoted forward prices for natural gas, the contracted volumes, volatility factors, and time to maturity, which are considered Level 2 inputs.

The Company’s derivative instruments are recorded at fair value within “Other current liabilities” on the Company’s consolidated balance sheet as of September 30, 2020.

The Company’s derivative instruments are recorded at fair value within “Other current liabilities” on the Company’s consolidated balance sheet as of March 31, 2021.

The Company’s derivative instruments were recorded at fair value within “Other current assets” on the Company’s

consolidated balance sheet as of December 31, 2020.

These fair values are recorded by netting asset and liability positions with the same counterparty and are subject to contractual terms, which provide for net settlement.

There are no long-term derivative assets or liabilities as of September 30, 2020 and there were no outstanding derivative instruments as of December 31, 2019.

The following table presents the classification of the outstanding derivative instruments and the fair value hierarchy table for the Company’s derivative assets and liabilities that are required to be measured at fair value on a recurring basis:

1 unchanged sentence

(In thousands) Level 1 Level 2 Level 3 Total Fair Value Netting Carrying Amount

September 30, 2020

March 31, 2021

Current assets:

2 unchanged sentences

Natural gas derivative instruments $ — $ 319 $ — $ 319 $ ( 114 ) $ 205

Fair Value Measurements Using

(In thousands) Level 1 Level 2 Level 3 Total Fair Value Netting Carrying Amount

December 31, 2020

Current assets:

Natural gas derivative instruments $ — $ 1,375 $ — $ 1,375 $ ( 1,098 ) $ 277

Current liabilities:

Natural gas derivative instruments $ — $ 1,098 $ — $ 1,098 $ ( 1,098 ) $ —

See Note 5 — Derivative Instruments for notional volumes and terms with the Company’s derivative contracts.

3 unchanged sentences

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 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.

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

2 unchanged sentences

Significant inputs associated with the calculation of discounted future net cash flows include estimates of future commodity prices based on NYMEX strip pricing adjusted for price differentials, estimates of proved oil and natural gas reserves and risk adjusted probable and possible reserves, estimates of future expected operating and capital costs, and a market participant based weighted average cost of capital of 10 % for proved property impairments and 12 % for unproved property impairments.

Deemed Dividend

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

The difference in fair value between the Class A Common Stock issued and the warrants exchanged was recorded as a non-cash deemed dividend for the incremental value provided to the holders of the warrants.

The fair value of the non-cash deemed dividend related to the warrant exchange was determined based on unadjusted quoted prices in an active market, which are considered a Level 1 input in the fair value hierarchy.

Refer to Note 1 2 — Stockholders’ Equity for additional information.

No impairments were recorded for the three months ended March 31, 2021.

Intangible Assets

Non-Compete Agreement

On July 31, 2018, the Company and EnerVest, separate and apart from the Business Combination, entered into a non-compete agreement (the “Non-Compete”), which prohibits EnerVest and certain of its affiliates from competing with the Company in the Eagle Ford Shale (the “Market Area”) until July 31, 2022.

Under the Non-Compete, an affiliate of EnerVest will have the right to receive 4.0 million shares of Class A Common Stock in two tranches of 2.0 million shares in two and one half and four years from July 31, 2018 provided EnerVest does not compete in the Market Area.

The Company recorded an estimated cost of $ 44.4 million for the Non-Compete as intangible assets on the Company’s consolidated balance sheet.

On July 31, 2018 (the “Closing Date”), the Company and EnerVest, separate and apart from the Business Combination, entered into the Non-Compete, which prohibits EnerVest and certain of its affiliates from competing with the Company in the Eagle Ford Shale (the “Market Area”) until July 31, 2022.

In January 2021, the Company amended the Non-Compete such that, rather than delivering an aggregate of 4.0 million shares of Class A Common Stock upon the two and one-half year and the four year anniversaries of the Closing Date, the Company would deliver (i) the cash value of approximately 2.0 million shares of Class A Common Stock and approximately 0.4 million shares of Class A Common Stock on the two and one-half year anniversary of the Closing Date and (ii) an aggregate of 1.6 million shares of Class A Common Stock on the four year anniversary of the Closing Date,

in each case subject to the terms and conditions of the Non-Compete.

On February 1, 2021, as consideration for compliance with the Non-Compete, the Company paid $ 17.2 million in cash and issued 0.4 million shares of Class A Common Stock.

On the Closing Date, the Company recorded an estimated cost of $ 44.4 million for the Non-Compete as intangible assets on the Company’s consolidated balance sheet.

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

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

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

(In thousands) March 31, 2021 December 31, 2020

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) September 30, 2020 December 31, 2019

(In thousands) March 31, 2021 December 31, 2020

Accrued capital expenditures $ 14,624 $ 16,368

Accrued general and administrative expenditures 9,155 11,243

Accrued ad valorem taxes 7,027 8,741

Accrued gathering, transportation and processing 6,800 6,101

Accrued production taxes 6,577 4,824

Other 14,654 27,787

2 unchanged sentences

The Company’s debt is comprised of the following:

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

(In thousands) March 31, 2021 December 31, 2020

Revolving credit facility $ — $ —

3 unchanged sentences

Unamortized deferred financing cost ( 8,552 ) ( 8,885 )

Total debt, net $ 390,787 $ 389,835

Long-term debt, net $ 391,448 $ 391,115

Credit Facility

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 September 30, 2020 was $ 450.0 million.

On October 15, 2020, Magnolia Operating entered into a Borrowing Base Redetermination Agreement and Amendment No.

2 to the RBL Facility, which provided for, among other things, the reaffirmation of the borrowing base at $ 450.0 million as part of the semi-annual scheduled redetermination.

In connection with the consummation of the Business Combination, the RBL Facility was entered into by and 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, 2021 was $ 450.0 million, which was reaffirmed on April 12, 2021.

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 September 30, 2020, the Company was in compliance with all covenants under the RBL Facility.

As of March 31, 2021, 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 related to the RBL Facility of $ 1.0 million and $ 1.1 million for the three months ended September 30, 2020 and 2019, respectively, and $ 3.2 million and $ 3.4 million for the nine months ended September 30, 2020 and 2019, respectively.

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

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

The Company recognized interest expense related to the RBL Facility of $ 1.0 million and $ 1.1 million for the three months ended March 31, 2021 and 2020, respectively.

The unamortized portion of the deferred financing costs is included in “Deferred financing costs, net” on the accompanying consolidated balance sheet as of March 31, 2021.

The Company did no t have any outstanding borrowings under its RBL Facility as of March 31, 2021.

2026 Senior Notes

On July 31, 2018, the Issuers issued and sold $ 400.0 million aggregate principal amount of 2026 Senior Notes in a private placement under Rule 144A and Regulation S under the Securities Act of 1933.

On July 31, 2018, the Issuers issued and sold $ 400.0 million aggregate principal amount of 2026 Senior Notes in a private placement under Rule 144A and Regulation S under the Securities Act of 1933, as amended.

The 2026 Senior Notes were issued under the Indenture, dated as of July 31, 2018 (the “Indenture”), by and among the Issuers and Deutsche Bank Trust Company Americas, as trustee.

5 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 September 30, 2020.

The Company recognized interest expense related to the 2026 Senior Notes of $ 6.3 million for each of the three months ended September 30, 2020 and 2019, and $ 19.0 million and $ 18.9 million for the nine months ended September 30, 2020 and 2019, respectively.

The unamortized portion of the deferred financing costs is included as a reduction to the carrying value of the 2026 Senior Notes, which has been recorded as “Long-term debt, net” on the consolidated balance sheet as of March 31, 2021.

The Company recognized interest expense related to the 2026 Senior Notes of $ 6.3 million for each of the three months ended March 31, 2021 and 2020.

Commitments and Contingencies

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

At September 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 September 30, 2020 or September 30, 2019.

At March 31, 2021, 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, 2021 or March 31, 2020.

Environmental Matters

The Company, as an owner or lessee and operator of oil and natural gas properties, is subject to various federal, state, local laws, and regulations relating to discharge of materials into, and protection of, the environment.

These laws and regulations may, among other things, impose liability on the lessee under an oil and natural gas lease for the cost of pollution clean-up resulting from operations and subject the lessee to liability for pollution damages.

In some instances, the Company may be directed to suspend or cease operations in the affected area.

The Company, as an owner or lessee and operator of oil and natural gas properties, is subject to various federal, state, and local laws and regulations relating to discharge of materials into, and the protection of, the environment.

These laws and regulations may, among other things, impose liability on a lessee under an oil and natural gas lease for the cost of pollution clean-up resulting from operations and subject the lessee to liability for pollution damages.

In some instances, the Company may be directed to suspend or cease operations in an affected area.

The Company maintains insurance coverage, which it believes is customary in the industry, although the Company is not fully insured against all environmental risks.

Risks and Uncertainties

The Company’s revenue, profitability, and future growth are substantially dependent upon the prevailing and future prices for oil and natural gas, which depend on numerous factors beyond the Company’s control such as overall oil and natural gas production and inventories in relevant markets, economic conditions, the global political environment, regulatory developments, and competition from other energy sources.

from other energy sources.

Oil and natural gas prices historically have been volatile and may be subject to significant fluctuations in the future.

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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.

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.

The implications of the decrease in global demand for, coupled with the general oversupply of, oil may have further negative effects on the Company’s business.

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.

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.

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

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 resulted in an income tax benefit of $ 1.2 million during the nine months ended September 30, 2020.

The difference in the U.S.

federal statutory tax rate of 34% in 2017 compared to 21% in 2018 and thereafter resulted in a discrete benefit to the tax provision of approximately $ 0.4 million for the nine months ended September 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 nine months ended September 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 effective tax rate for the nine months ended September 30, 2020 and 2019 was 4.0 % and 14.9 %, respectively.

During the nine months ended September 30, 2020, the Company’s effective tax rate was primarily impacted by the reversal of its federal and state deferred tax liabilities and the federal and state deferred tax assets generated from losses related to non-cash impairments of the carrying value of the Company’s oil and natural gas properties, offset by the recognition of valuation allowances.

The primary differences between the annual 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 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 September 30, 2020, the Company’s net deferred tax asset was $ 203.3 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, the overall business environment, its historical earnings and losses, current industry trends, and its outlook for future years.

As of September 30, 2020, the Company assessed the realizability of the deferred tax assets and recorded a full valuation allowance of $ 203.3 million.

and other locations across the world or as a result of the related social distancing guidelines, travel restrictions, and stay-at-home orders.

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

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

Three Months Ended Nine Months Ended

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

Three Months Ended

(In thousands) March 31, 2021 March 31, 2020

Federal $ — $ ( 1,172 )

State ( 339 ) 115 ( 339 ) 684

399 ( 1,172 )

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State — ( 5,777 )

— 3,414 ( 77,834 ) 11,765

Income tax expense (benefit) $ 399 $ ( 75,826 )

The Company is subject to U.S.

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 September 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.

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

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

The Company’s effective tax rate for the three months ended March 31, 2021 and 2020 was 0.4 % and 3.8 %, respectively.

As a result of impairments in the first quarter of 2020, the Company established full valuation allowances on the federal and state deferred tax assets which resulted in additional differences between the effective tax rate and the statutory rate as of March 31, 2021 and March 31, 2020.

The primary differences between the annual effective tax rate and the statutory rate of 21.0% are income attributable to noncontrolling interest, state taxes, and valuation allowances.

As of March 31, 2021, the Company did no t have an accrued liability for uncertain tax positions and does not anticipate recognition of any significant liabilities for uncertain tax positions during the next 12 months.

For the quarter ended March 31, 2021, no amounts were incurred for income tax uncertainties or interest and penalties.

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

The Company’s tax years since its formation remain subject to possible income tax examinations by its major taxing authorities for all periods.

On March 5, 2021, EnerVest redeemed 14.2 million Magnolia LLC Units (and a corresponding number of shares of Class B Common Stock) for an equivalent number of shares of Class A Common Stock and subsequently sold such shares as part of the secondary offering.

Magnolia did not receive any proceeds from the sale of shares of Class A Common Stock by EnerVest.

The redemption and exchange of these Magnolia LLC Units created additional tax basis in Magnolia LLC.

There was no net tax impact as the Company recorded a full valuation allowance.

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

Applying the net operating loss carryback provision resulted in an income tax benefit of $ 1.2 million in the first quarter of 2020.

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 March 31, 2021, the Company’s net deferred tax asset was $ 218.5 million.

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

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 March 31, 2021, the Company assessed the realizability of the deferred tax assets and recorded a full valuation allowance of $ 218.5 million.

Stockholders’ Equity

Class A Common Stock

At September 30, 2020, there were 168.7 million shares of Class A Common Stock issued and 165.6 million shares of Class A Common Stock outstanding.

At March 31, 2021, there were 183.5 million shares of Class A Common Stock issued and 176.1 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.

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.

In the event of a liquidation, dissolution, or winding up of the Company, 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 September 30, 2020, there were 85.8 million shares of Class B Common Stock issued and outstanding.

At March 31, 2021, there were 66.6 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.

The holders of Class B Common Stock generally have the right to exchange all or a portion of their Class B Common Stock, together with an equal number of Magnolia LLC Units, for the same number of shares of Class A Common Stock or, at Magnolia LLC’s option, an equivalent amount of cash.

The holders of Class B Common Stock generally have the right to exchange all or a portion of their shares of Class B Common Stock, together with an equal number of Magnolia LLC Units, for the same number of shares of Class A Common Stock or, at Magnolia LLC’s option, an equivalent amount of cash.

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.

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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.

On June 7, 2019, the Company commenced an exchange offer (the “Offer”) and consent solicitation (the “Consent Solicitation”), pursuant to which the Company (1) offered to holders of its warrants the opportunity to receive 0.29 shares of Class A Common Stock in exchange for each warrant validly tendered and (2) solicited the consent from the holders of its warrants to approve an amendment to the Company’s existing warrant agreement, by and between the Company and Continental Stock Transfer & Trust Company, to amend the agreement to provide the Company with the right to require any holder of the Company’s warrants to exchange their warrants for Class A Common Stock at an exchange ratio of 0.261 shares of Class A Common Stock for each whole warrant (the “Warrant Amendment”).

Pursuant to the Offer, certain of the Company’s warrantholders, including directors and executive officers, agreed to tender their warrants and provide the corresponding consent to the Warrants Amendment in the Consent Solicitation by entering into a tender and support agreement with the Company on June 7, 2019.

The Offer and Consent Solicitation expired on July 5, 2019.

In connection with the closing of the Offer on July 10, 2019 and the subsequent exercise of the Company’s right to exchange all remaining warrants on July 25, 2019, the Company issued an aggregate of 9.2 million shares of Class A Common Stock in exchange for all of its 31.7 million warrants outstanding, which consisted of 21.7 million public warrants and 10.0 million private placement warrants.

As the fair value of the warrants exchanged in the Offer was less than the fair value of the Class A Common Stock issued, the Company recorded a non-cash deemed dividend of $ 2.8 million for the incremental value provided to the warrant holders.

The fair value of warrants and the Class A Common Stock was determined using unadjusted quoted prices in an active market, a Level 1 fair value input.

The Company capitalized $ 2.2 million of expenses related to the Offer within “Additional paid-in capital” on the Company’s consolidated balance sheet.

Share Repurchase Program

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 Company’s board of directors has authorized a share repurchase program of up to 20.0 million shares of Class A Common Stock.

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

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

As of March 31, 2021, the Company had repurchased 7.4 million shares under the plan at a cost of $ 59.2 million.

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 the cancellation of Class B Common Stock (and corresponding Magnolia LLC Units).

As of September 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.

Noncontrolling interest in Magnolia’s consolidated subsidiaries includes 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 and repurchases 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).

On March 5, 2021, Magnolia LLC repurchased and subsequently canceled 5.0 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock for $ 50.8 million of cash consideration (the “Class B Common Stock Repurchase”).

In addition, EnerVest redeemed 14.2 million Magnolia LLC Units (and a corresponding number of shares of Class B Common Stock) for an equivalent number of shares of Class A Common Stock and subsequently sold such shares as part of the secondary offering completed on March 5, 2021.

Magnolia did not receive any proceeds from the sale of shares of Class A Common Stock by EnerVest.

Magnolia funded the Class B Common Stock Repurchase with cash on hand.

As of March 31, 2021, Magnolia owned approximately 72.6 % of the interest in Magnolia LLC and the noncontrolling interest was 27.4 %.

In the first quarter of 2019, Magnolia Operating formed Highlander Oil & Gas Holdings LLC (“Highlander”) as a joint venture whereby MGY Louisiana LLC, a wholly owned subsidiary of Magnolia Operating, holds approximately 84.7 % of the units of Highlander, with the remaining 15.3 % attributable to noncontrolling interest.

Stock Based Compensation

On October 8, 2018, the Company’s board of directors adopted the “Magnolia Oil & Gas Corporation Long Term Incentive Plan” (the “Plan”), effective as of July 17, 2018.

A total of 11.8 million shares of Class A Common Stock have been authorized for issuance under the Plan.

The Company grants stock based compensation awards in the form of restricted stock units (“RSUs”) and performance stock units (“PSUs”) to eligible employees and directors to enhance the Company and its affiliates’ ability to attract, retain, and motivate persons who make important contributions to the Company and its affiliates by providing these individuals with equity ownership opportunities.

A total of 11.8 million shares of Class A Common Stock have been authorized for

issuance under the Plan.

On May 4, 2021, the Company increased the maximum total number of shares of Class A Common Stock that may be issued under the Plan by 5.0 million to 16.8 million.

The Company grants stock based compensation awards in the form of restricted stock units (“RSUs”), performance stock units (“PSUs”), and performance restricted stock units (“PRSUs”) to eligible employees and directors to enhance the Company and its affiliates’ ability to attract, retain, and motivate persons who make important contributions to the Company and its affiliates by providing these individuals with equity ownership opportunities.

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 $ 2.8 million for the three months ended September 30, 2020 and 2019, respectively, and $ 8.9 million and $ 8.4 million for the nine months ended September 30, 2020 and 2019, respectively.

Stock based compensation expense is recognized net of forfeitures within “General and administrative expenses” and “Lease operating expenses” on the consolidated statements of operations and was $ 2.7 million and $ 2.9 million for the three months ended March 31, 2021 and 2020, respectively.

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

The following table presents a summary of Magnolia’s unvested RSU, PSU, and PRSU activity.

Restricted Stock Units Performance Stock Units Performance Restricted Stock Units

Units Weighted Average Grant Date Fair Value Units Weighted Average Grant Date Fair Value Units Weighted Average Grant Date Fair Value

Unvested at December 31, 2020 1,686,637 $ 8.51 841,425 $ 10.95 — $ —

Granted 306,132 9.69 — — 1,002,918 9.33

Vested ( 340,517 ) 9.50 ( 8,333 ) 14.58 — —

Forfeited ( 65,009 ) 9.96 ( 75,148 ) 9.13 ( 1,839 ) 9.33

Unvested at March 31, 2021 1,587,243 $ 8.46 757,944 $ 11.10 1,001,079 $ 9.33

Restricted Stock Units

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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 as of September 30, 2020 was $ 10.5 million, which the Company expects to recognize over a weighted average period of 1.7 years.

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

Three Months Ended Nine Months Ended

September 30, 2020 September 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 1,637,445 $ 10.02 1,099,901 $ 12.97

Granted 21,552 6.46 874,919 7.14

Vested ( 110,548 ) 14.43 ( 426,371 ) 13.03

Forfeited ( 27,678 ) 10.07 ( 27,678 ) 10.07

Unvested RSUs, end of period 1,520,771 $ 9.65 1,520,771 $ 9.65

Performance Stock Units

During the nine months ended September 30, 2020, the Company granted PSUs to certain employees.

Unrecognized compensation expense related to unvested RSUs as of March 31, 2021 was $ 9.9 million, which the Company expects to recognize over a weighted average period of 2.0 years.

Performance Stock Units and Performance Restricted Stock Units

The Company grants PRSUs to certain employees.

Each PRSU represents the contingent right to receive one share of Class A Common Stock once the PRSU is both vested and earned.

PRSUs generally vest either ratably over a three-year service period or at the end of a three-year service period, in each case, subject to the recipient’s continued employment or service through each applicable vesting date.

Each PRSU is earned based on whether Magnolia’s stock price achieves a target average stock price for any 20 consecutive trading days during the five-year performance period.

If PRSUs are not earned by the end of the five-year performance period, the PRSUs will be forfeited and no shares of Class A Common Stock will be issued, even if the vesting conditions have been met.

Compensation expense for the PRSU awards is based upon grant date fair market value of the award, calculated using a Monte Carlo simulation, as presented below, 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, as applicable.

Unrecognized compensation expense related to unvested PRSUs as of March 31, 2021 was $ 9.0 million, which the Company expects to recognize over a weighted average period of 3.0 years.

The Company grants 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 as of September 30, 2020 was $ 5.1 million, which the Company expects to recognize over a weighted average period of 1.6 years.

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

Three Months Ended Nine Months Ended

September 30, 2020 September 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 1,086,419 $ 11.28 701,128 $ 14.31

Granted — — 401,958 6.14

Vested ( 25,260 ) 14.58 ( 41,927 ) 14.58

Forfeited ( 30,529 ) 10.77 ( 30,529 ) 10.77

Unvested PSUs, end of period 1,030,630 $ 11.22 1,030,630 $ 11.22

The grant date fair values of the PSUs granted were $ 2.5 million and $ 3.7 million during the nine months ended September 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.

Nine Months Ended

Grant Date Fair Value Assumptions September 30, 2020 September 30, 2019

Unrecognized compensation expense related to unvested PSUs as of March 31, 2021 was $ 2.3 million, which the Company expects to recognize over a weighted average period of 1.2 years.

The grant date fair values of the PRSUs granted during the three months ended March 31, 2021 and the PSUs granted during the three months ended March 31, 2020, were $ 9.4 million and $ 2.5 million, respectively, calculated using a Monte Carlo simulation.

The following table summarizes the assumptions used to calculate the grant date fair value of the PRSUs in 2021 and the PSUs in 2020.

Three Months Ended

PRSU and PSU Grant Date Fair Value Assumptions March 31, 2021 March 31, 2020

Expected term (in years)

2.85 2.67 - 2.85

Expected volatility 55.18 % 33.50 %

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Earnings (Loss) Per Share

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

Three Months Ended Nine Months Ended

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

The Company’s unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are deemed participating securities and, therefore, have been deducted from earnings in computing basic and diluted net income (loss) per share under the two-class method.

Diluted net income (loss) per share attributable to common stockholders is calculated under both the two-class method and the treasury stock method and the more dilutive of the two calculations is presented.

The components of basic and diluted net income (loss) per share attributable to common stockholders are as follows:

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

Three Months Ended

(In thousands, except per share data) March 31, 2021 March 31, 2020

Net income (loss) attributable to Class A Common Stock $ 63,244 $ ( 1,227,010 )

Undistributed earnings allocated to participating securities 213 —

Net income (loss), net of participating securities $ 63,031 $ ( 1,227,010 )

Weighted average number of common shares outstanding during the period - basic 166,952 167,149

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Net income (loss) attributable to Class A Common Stock $ 63,244 $ ( 1,227,010 )

Undistributed earnings reallocated to participating securities 210 —

Net income (loss), net of participating securities $ 63,034 $ ( 1,227,010 )

Weighted average number of common shares outstanding during the period - basic 166,952 167,149

Dilutive effect warrants, stock based compensation, and other 4,209 236 — 1,437

Dilutive effect of stock based compensation and other 2,684 —

Weighted average number of common shares outstanding during the period - diluted 169,636 167,149

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$ 0.37 $ ( 7.34 )

The Company excluded 85.8 million for the three and nine months ended September 30, 2020, 91.8 million for the three months ended September 30, 2019, and 92.3 million for the nine months ended September 30, 2019 of 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.

In addition, the Company excluded 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 0.2 million RSUs and PSU because the effect was anti-dilutive for the nine months ended September 30, 2020.

For the three months ended March 31, 2021 and March 31, 2020, respectively, the Company excluded 80.3 million and 85.8 million of weighted average shares of Class A Common Stock issuable upon the exchange of Class B Common Stock (and corresponding Magnolia LLC Units) as the effect was anti-dilutive.

In addition, for the three months ended March 31, 2020, the Company excluded 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 0.3 million RSUs and PSUs because the effect was anti-dilutive.

Related Party Transactions

As of September 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.”

As of March 31, 2021, 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.”

Class B Common Stock Repurchase and Secondary Offering

On March 5, 2021, EnerVest Energy Institutional Fund XIV-A, L.P.

received $ 33.6 million in cash and surrendered 3.3 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock.

Subsequently, Magnolia LLC canceled the surrendered Magnolia LLC Units and a corresponding number of shares of Class B Common Stock.

EnerVest Energy Institutional Fund XIV-A, L.P.

also redeemed 9.4 million Magnolia LLC Units (and a corresponding number of shares of Class B Common Stock) for an equivalent number of shares of Class A Common Stock which were subsequently sold to the public in a secondary offering completed on March 5, 2021.

In the same secondary offering, EnerVest Energy Institutional Fund XIV-C, L.P.

sold 5.4 million shares of Class A Common Stock.

Magnolia did not receive any proceeds from the sale of shares of Class A Common Stock by EnerVest Energy Institutional Fund XIV-A, L.P.

or EnerVest Energy Institutional Fund XIV-C, L.P.

as part of the secondary offering.

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