What changed in this filing

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Item 1. Financial Statements

2021-08-03 compared with 2021-05-05 · 147 added, 106 removed, 397 unchanged (39% of the section changed)

3 unchanged sentences

(In thousands)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

ASSETS (Unaudited) (Audited)

43 unchanged sentences

(In thousands, except per share data)

Three Months Ended

March 31, 2021 March 31, 2020

Three Months Ended Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Oil revenues $ 188,096 $ 60,790 $ 334,509 $ 215,476

18 unchanged sentences

Loss on derivatives, net ( 2,004 ) — ( 2,486 ) —

Other expense, net ( 229 ) ( 472 )

Other income (expense), net 135 13 ( 94 ) ( 460 )

Total other expense, net ( 10,621 ) ( 6,632 ) ( 18,626 ) ( 13,420 )

25 unchanged sentences

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 — — — — 2,023 — — — 2,023 1,042 3,065

Changes in ownership interest adjustment — — — — 124 — — — 124 ( 124 ) —

Common stock issued related to stock based compensation and other, net 114 — — — ( 22 ) — — — ( 22 ) ( 11 ) ( 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

Magnolia Oil & Gas Corporation

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(In thousands)

Common Stock Class B

4 unchanged sentences

Changes in ownership interest adjustment — — — — 28,924 — — — 28,924 ( 28,924 ) —

Common stock issued related to stock based compensation, net 244 — — — ( 839 ) — — — ( 839 ) ( 399 ) ( 1,238 )

Common stock issued related to stock based compensation and other, net 244 — — — ( 839 ) — — — ( 839 ) ( 399 ) ( 1,238 )

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

5 unchanged sentences

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

Stock based compensation expense — — — — 2,577 — — — 2,577 951 3,528

Changes in ownership interest adjustment — — — — ( 30,662 ) — — — ( 30,662 ) 30,662 —

Common stock issued related to stock based compensation and other, net 160 — — — ( 44 ) — — — ( 44 ) ( 17 ) ( 61 )

Class A Common Stock repurchases — — — — — 2,025 ( 24,047 ) — ( 24,047 ) — ( 24,047 )

Class B Common Stock purchase and cancellation — — ( 5,000 ) ( 1 ) 1 — — — — ( 71,750 ) ( 71,750 )

Non-compete settlement — — — — ( 18,527 ) — — — ( 18,527 ) ( 6,395 ) ( 24,922 )

Conversion of Class B Common Stock to Class A Common Stock 1,100 — ( 1,100 ) — — — — — — — —

Distributions to noncontrolling interest owners — — — — — — — — — ( 276 ) ( 276 )

Net Income — — — — — — — 84,445 84,445 31,727 116,172

Balance, June 30, 2021 184,800 $ 18 60,524 $ 6 $ 1,684,579 9,473 $ ( 83,286 ) $ ( 977,761 ) $ 623,556 $ 219,100 $ 842,656

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

2 unchanged sentences

( In thousands)

Three Months Ended

March 31, 2021 March 31, 2020

Six Months Ended

June 30, 2021 June 30, 2020

CASH FLOWS FROM OPERATING ACTIVITIES

7 unchanged sentences

Amortization of deferred financing costs 2,018 1,797

Loss on derivatives, net 482 —

Unrealized loss on derivatives, net 2,320 —

Deferred taxes — ( 77,834 )

9 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions, other ( 558 ) ( 69,390 )

Acquisitions ( 9,409 ) ( 69,782 )

Additions to oil and natural gas properties ( 94,356 ) ( 129,651 )

3 unchanged sentences

CASH FLOW FROM FINANCING ACTIVITIES

Distributions to noncontrolling interest owners ( 155 ) ( 284 )

Class A Common Stock repurchases ( 44,328 ) ( 6,483 )

1 unchanged sentence

Non-compete settlement ( 42,074 ) —

Cash paid for debt modification ( 4,976 ) —

Distributions to noncontrolling interest owners ( 431 ) ( 490 )

Other financing activities ( 1,364 ) ( 493 )

5 unchanged sentences

Supplemental non-cash operating activity:

Cash paid (received) for income taxes $ — $ —

Cash paid for income taxes $ 15 $ —

Cash paid for interest 14,033 12,540

21 unchanged sentences

The Company’s interests in oil and natural gas exploration and production ventures and partnerships are proportionately consolidated.

The Company reflects a noncontrolling interest representing primarily the interest owned by the Karnes County Contributors through their ownership of Magnolia LLC Units in the consolidated financial statements.

The Company reflects a noncontrolling interest representing primarily the interest owned by the Magnolia LLC Unit Holders through their ownership of Magnolia LLC Units in the consolidated financial statements.

The noncontrolling interest is presented as a component of equity.

1 unchanged sentence

Summary of Significant Accounting Policies

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.

As of June 30, 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

21 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 $ 95.2 million as of March 31, 2021 and $ 72.0 million as of December 31, 2020.

Receivables from contracts with customers totaled $ 105.9 million as of June 30, 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.

15 unchanged sentences

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 statements of operations.

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:

The following table summarizes the effects of derivative instruments on the Company’s consolidated statements of operations during the three and six months ended June 30, 2021:

(In thousands) Three Months Ended June 30, 2021 Six Months Ended June 30, 2021

Derivative settlements, realized loss $ 166 $ 166

Unrealized loss on derivatives 1,838 2,320

Loss on derivatives, net $ 2,004 $ 2,486

The Company did not have any derivative instruments during the three or six months ended June 30, 2020.

The Company had the following outstanding derivative contracts in place as of June 30, 2021:

Natural gas costless collars:

14 unchanged sentences

Debt Obligations

The carrying value and fair value of the financial instrument that is not carried at fair value in the accompanying consolidated balance sheet at March 31, 2021 and December 31, 2020 is as follows:

March 31, 2021 December 31, 2020

The carrying value and fair value of the financial instrument that is not carried at fair value in the accompanying consolidated balance sheets at June 30, 2021 and December 31, 2020 is as follows:

June 30, 2021 December 31, 2020

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

Long-term debt $ 386,996 $ 412,608 $ 391,115 $ 407,500

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.

The fair value of the 2026 Senior Notes at June 30, 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.

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 instruments and their relatively short maturities.

3 unchanged sentences

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 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.

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

2 unchanged sentences

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

March 31, 2021

June 30, 2021

Current assets:

14 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 for the three months ended March 31, 2020.

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.

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

No impairments were recorded for the three and six months ended June 30, 2021.

Intangible Assets

Non-Compete Agreement

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

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 .

On June 30, 2021, the Company amended the Non-Compete Prohibited Period End Date to terminate on June 30, 2021 and paid $ 24.9 million in cash in lieu of delivering the remaining 1.6 million shares of Class A Common Stock (the “Second Non-Compete Amendment”).

On the Closing Date of the initial Business Combination, 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 had a definite life and were subject to amortization utilizing the straight-line method over their economic life, previously estimated to be two and one-half to four years .

The Second Non-Compete Amendment resulted in the Company accelerating the amortization of the remaining intangible assets.

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

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

(In thousands) June 30, 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) March 31, 2021 December 31, 2020

(In thousands) June 30, 2021 December 31, 2020

Accrued capital expenditures $ 28,182 $ 16,368

Accrued general and administrative expenditures 9,155 11,243

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

Accrued production taxes 6,577 4,824

Accrued interest 10,000 10,000

Other 37,633 39,955

2 unchanged sentences

The Company’s debt is comprised of the following:

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

(In thousands) June 30, 2021 December 31, 2020

Revolving credit facility $ — $ —

6 unchanged sentences

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 borrowing base as of June 30, 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 March 31, 2021, the Company was in compliance with all covenants under the RBL Facility.

As of June 30, 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 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.

The Company recognized interest expense related to the RBL Facility of $ 1.0 million for each of the three months ended June 30, 2021 and 2020, and $ 2.0 million and $ 2.2 million for the six months ended June 30, 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 June 30, 2021.

The Company did no t have any outstanding borrowings under its RBL Facility as of June 30, 2021.

2026 Senior Notes

3 unchanged sentences

The 2026 Senior Notes will mature on August 1, 2026 and bear interest at the rate of 6.0 % per annum.

At any time prior to August 1, 2022, the Issuers may, on any one or more occasions, redeem all or a part of the 2026 Senior Notes at a redemption price equal to 100 % of the principal amount of the 2026 Senior Notes redeemed, plus a “make whole” premium on accrued and unpaid interest, if any, to, but excluding, the date of redemption.

After August 1, 2022, the Issuers may redeem all or a part of the 2026 Senior Notes based on principal plus a set premium, as set forth in the Indenture, including any accrued and unpaid interest.

The Company incurred $ 11.8 million of deferred financing costs related to the issuance of the 2026 Senior Notes, which were capitalized.

On April 5, 2021, the terms of the Indenture were amended to modify, among other things, the criteria used by the Company to make Restricted Payments (as defined in the Indenture).

The amendment to the Indenture was accounted for as a debt modification.

Costs incurred with third parties directly related to the modification were expensed as incurred.

The Company incurred approximately $ 1.1 million of transaction fees related to the modification which were expensed and are reflected in “Interest expense, net” on the Company’s consolidated statements of operations for the three and six months ended June 30, 2021.

The Company also paid $ 5.0 million in fees to holders of the 2026 Senior Notes, which are reflected as deferred financing costs reducing “Long-term debt, net” on the Company’s consolidated balance sheets.

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

The Company incurred $ 11.8 million of deferred financing costs related to the issuance of the 2026 Senior Notes, and an additional $ 5.0 million related to the amendment to the Indenture governing the 2026 Senior Notes, which were capitalized.

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 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.

The Company recognized interest expense related to the 2026 Senior Notes of $ 7.7 million and $ 6.3 million for the three months ended June 30, 2021 and 2020, respectively, and $ 14.0 million and $ 12.6 million for the six months ended June 30, 2021 and 2020, respectively.

After August 1, 2022, the Issuers may redeem all or a

part of the 2026 Senior Notes based on principal plus a set premium, as set forth in the Indenture, including any accrued and unpaid interest.

Commitments and Contingencies

Legal Matters

The Company is involved in disputes or legal actions in the ordinary course of business.

For example, certain of the Karnes County Contributors and the Company have been named as defendants in a lawsuit where the plaintiffs claim to be entitled to a minority working interest in certain Karnes County Assets.

From time to time, the Company is or may become involved in litigation in the ordinary course of business.

Certain of the Magnolia LLC Unit Holders and the Company have been named as defendants in a lawsuit where the plaintiffs claim to be entitled to a minority working interest in certain Karnes County Assets.

The litigation is in the pre-trial stage.

The exposure related to this litigation is currently not reasonably estimable.

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

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.

The Magnolia LLC Unit Holders retained all such liability in connection with the Business Combination.

A mineral owner in a Magnolia operated well in Karnes County, Texas filed a complaint with the Texas Railroad Commission (the “Commission”) challenging the validity of the permit to drill such well by questioning the long-standing process by which the Commission granted the permit.

After the Commission affirmed the granting of the permit, and after judicial review of the Commission’s order by the 53rd Judicial District Court Travis County, Texas (the “District Court”), the District Court reversed and remanded the Commission’s order.

The Commission and Magnolia have appealed the District Court’s judgment to the Third Court of Appeals in Austin, Texas, and the appeal is in the preliminary stage.

At June 30, 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 June 30, 2021 or June 30, 2020.

Environmental Matters

4 unchanged sentences

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.

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

The coronavirus disease 2019 (“COVID-19”) pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the oil and natural gas industry.

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.

Oil demand significantly deteriorated and has remained volatile 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, 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 or as a result of the related social distancing guidelines, travel restrictions, and stay-at-home orders.

and other locations across the world or as a result of any 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

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

Three Months Ended Six Months Ended

(In thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Federal $ 1,645 $ 5 $ 1,645 $ ( 1,167 )

State 753 — 1,152 —

2,398 5 2,797 ( 1,167 )

1 unchanged sentence

State — ( 265 ) — ( 6,042 )

— ( 3,181 ) — ( 77,834 )

Income tax expense (benefit) $ 2,398 $ ( 3,176 ) $ 2,797 $ ( 79,001 )

2 unchanged sentences

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 Company’s effective tax rate for the three months ended June 30, 2021 and 2020 was 2.0 % and 9.8 %, respectively.

The Company’s effective tax rate for the six months ended June 30, 2021 and 2020 was 1.3 % and 3.9 %, 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 June 30, 2021 and June 30, 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.

As of June 30, 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 June 30, 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.

During the six months ended June 30, 2021, EnerVest redeemed 15.3 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 these shares to the public.

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

4 unchanged sentences

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.

As of June 30, 2021, the Company’s net deferred tax asset was $ 210.4 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 March 31, 2021, the Company assessed the realizability of the deferred tax assets and recorded a full valuation allowance of $ 218.5 million.

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

As of June 30, 2021, the Company assessed the realizability of the deferred tax assets and recorded a full valuation allowance of $ 210.4 million.

Stockholders’ Equity

Class A Common Stock

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.

At June 30, 2021, there were 184.8 million shares of Class A Common Stock issued and 175.3 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.

There is no cumulative voting with respect to the election of directors, which results in the holders of more than 50% of the Company’s outstanding common 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 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.

1 unchanged sentence

Class B Common Stock

At March 31, 2021, there were 66.6 million shares of Class B Common Stock issued and outstanding.

At June 30, 2021, there were 60.5 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.

5 unchanged sentences

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

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

As of June 30, 2021, the Company had repurchased 9.5 million shares under the plan at a cost of $ 83.3 million.

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.

Noncontrolling interest in Magnolia’s consolidated subsidiaries includes amounts attributable to Magnolia LLC Units that were issued to the Magnolia LLC Unit Holders 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.

During the six months ended June 30, 2021 Magnolia LLC repurchased and subsequently canceled 10.0 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock for $ 122.5 million of cash consideration (the “Class B Common Stock Repurchases”).

During the same period, EnerVest redeemed 15.3 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 these shares to the public.

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 %.

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

As of June 30, 2021, Magnolia owned approximately 74.3 % of the interest in Magnolia LLC and the noncontrolling interest was 25.7 %.

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.

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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.

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.

A total of 16.8 million shares of Class A Common Stock have been authorized for issuance under the Plan as of June 30, 2021.

The Company grants stock based compensation awards in the form of restricted stock units (“RSU”), performance stock units (“PSU”), and performance restricted stock units (“PRSU”) 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” 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.

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 $ 3.5 million and $ 3.1 million for the three months ended June 30, 2021 and 2020, respectively, and $ 6.2 million and $ 5.9 million for the six months ended June 30, 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.

The following table presents a summary of Magnolia’s unvested RSU, PSU, and PRSU activity for the three months ended June 30, 2021.

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

Granted 148,996 11.82 — — 9,412 12.19

Vested ( 183,523 ) 6.65 ( 8,333 ) 14.58 — —

Forfeited — — — — — —

Unvested at June 30, 2021 1,552,716 $ 9.00 749,611 $ 11.06 1,010,491 $ 9.36

The following table presents a summary of Magnolia’s unvested RSU, PSU, and PRSU activity for the six months ended June 30, 2021.

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 — $ —

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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

Unvested at June 30, 2021 1,552,716 $ 9.00 749,611 $ 11.06 1,010,491 $ 9.36

Restricted Stock Units

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RSUs represent the right to receive shares of Class A Common Stock at the end of the vesting period equal to the number of RSUs that vest.

RSUs are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ceases to be an employee or director of the Company for any reason prior to vesting of the award.

RSUs are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ceases to be an employee or director of the Company prior to vesting of the award.

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 March 31, 2021 was $ 9.9 million, which the Company expects to recognize over a weighted average period of 2.0 years.

Unrecognized compensation expense related to unvested RSUs as of June 30, 2021 was $ 9.6 million, which the Company expects to recognize over a weighted average period of 2.0 years.

Performance Stock Units and Performance Restricted Stock Units

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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.

If PRSUs are not earned by the end of the five-year performance period (“Performance Condition”), 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.

Unrecognized compensation expense related to unvested PRSUs as of June 30, 2021 was $ 8.3 million, which the Company expects to recognize over a weighted average period of 2.8 years.

The Company grants PSUs to certain employees.

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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 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

Unrecognized compensation expense related to unvested PSUs as of June 30, 2021 was $ 1.6 million, which the Company expects to recognize over a weighted average period of 1.1 years.

The grant date fair values of the PRSUs granted during the six months ended June 30, 2021 and the PSUs granted during the six months ended June 30, 2020, were $ 9.5 million and $ 2.5 million, respectively.

Since the Performance Condition was met on March 17, 2021, the fair value of the PRSUs granted after this date was based upon the grant date market value of the award.

The fair values of the awards granted prior to March 17, 2021 were determined using a Monte Carlo simulation.

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

Six Months Ended

PRSU and PSU Grant Date Fair Value Assumptions June 30, 2021 June 30, 2020

Expected term (in years)

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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

Three Months Ended Six Months Ended

(In thousands, except per share data) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Net income (loss) attributable to Class A Common Stock $ 84,445 $ ( 18,272 ) $ 147,689 $ ( 1,245,282 )

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$ 0.48 $ ( 0.11 ) $ 0.85 $ ( 7.46 )

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.

For the three and six months ended June 30, 2021, the Company excluded 66.1 million and 73.1 million, respectively, 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.

For the three and six months ended June 30, 2020, the Company excluded 85.8 million weighted average shares of Class A Common Stock issuable upon the exchange of Class B Common Stock (and

corresponding Magnolia LLC Units), 4.0 million contingent shares of Class A Common Stock issuable to an affiliate of EnerVest, provided EnerVest did not compete in the Market Area, and 0.1 million RSUs and PSUs, because the effect was anti-dilutive.

Related Party Transactions

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.

As of June 30, 2021, EnerVest Energy Institutional Fund XIV-A, L.P., a Delaware limited partnership, which is part of the Magnolia LLC Unit Holders, held more than 10% of the Company’s common stock and qualified as a principal owner of the Company, as defined in ASC 850, “Related Party Disclosures.”

Class B Common Stock Repurchases and Redemptions

During the six months ended June 30, 2021, EnerVest Energy Institutional Fund XIV-A, L.P.

received $ 81.1 million in cash and surrendered 6.6 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock.

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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.

also redeemed 10.1 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.

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.

Subsequent Event

On August 2, 2021, the Company’s board of directors declared a semi-annual interim cash dividend of $ 0.08 per share of Class A Common Stock, and Magnolia LLC declared a cash distribution of $ 0.08 per Magnolia LLC Unit to each holder of Magnolia LLC Units, each payable on September 1, 2021 to shareholders or members of record, as applicable, as of August 12, 2021.

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

What changed 10-Q

Item 1. Financial Statements