What changed in this filing

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Item 1. Financial Statements

2021-11-02 compared with 2021-08-03 · 141 added, 121 removed, 423 unchanged (38% of the section changed)

3 unchanged sentences

(In thousands)

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

ASSETS (Unaudited) (Audited)

43 unchanged sentences

(In thousands, except per share data)

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

Oil revenues $ 195,132 $ 95,677 $ 529,641 $ 311,153

42 unchanged sentences

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

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

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

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

7 unchanged sentences

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 — — — — 1,931 — — — 1,931 996 2,927

Changes in ownership interest adjustment — — — — 1,110 — — — 1,110 ( 1,110 ) —

Common stock issued related to stock based compensation and other, net 89 — — — ( 119 ) — — — ( 119 ) ( 61 ) ( 180 )

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

Distributions to noncontrolling interest owners — — — — — — — — — ( 105 ) ( 105 )

Net income — — — — — — — 9,147 9,147 4,548 13,695

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

Magnolia Oil & Gas Corporation

25 unchanged sentences

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

Magnolia Oil & Gas Corporation

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(In thousands)

Common Stock Class B

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

Shares Value Shares Value Shares Value

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

Stock based compensation expense — — — — 2,180 — — — 2,180 730 2,910

Changes in ownership interest adjustment — — — — ( 5,373 ) — — — ( 5,373 ) 5,373 —

Common stock issued related to stock based compensation and other, net 219 — — — ( 1,348 ) — — — ( 1,348 ) ( 449 ) ( 1,797 )

Class A Common Stock repurchases — — — — — 1,995 ( 29,510 ) — ( 29,510 ) — ( 29,510 )

Class B Common Stock purchase and cancellation — — ( 3,000 ) — — — — — — ( 49,140 ) ( 49,140 )

Conversion of Class B Common Stock to Class A Common Stock 4,608 1 ( 4,608 ) ( 1 ) — — — — — — —

Dividends declared ($ 0.08 per share)

— — — — ( 14,233 ) — — — ( 14,233 ) — ( 14,233 )

Distributions to noncontrolling interest owners — — — — — — — — — ( 5,276 ) ( 5,276 )

Net income — — — — — — — 119,364 119,364 40,543 159,907

Balance, September 30, 2021 189,627 $ 19 52,916 $ 5 $ 1,665,805 11,468 $ ( 112,796 ) $ ( 858,397 ) $ 694,636 $ 210,881 $ 905,517

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

2 unchanged sentences

( In thousands)

Six Months Ended

June 30, 2021 June 30, 2020

Nine Months Ended

September 30, 2021 September 30, 2020

CASH FLOWS FROM OPERATING ACTIVITIES

26 unchanged sentences

Class A Common Stock repurchases ( 70,316 ) ( 12,962 )

Class B Common Stock purchase and cancellation ( 122,531 ) —

Class B Common Stock purchases and cancellations ( 171,671 ) —

Non-compete settlement ( 42,074 ) —

Dividends paid ( 14,103 ) —

Cash paid for debt modification ( 4,976 ) —

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SUPPLEMENTAL CASH FLOW INFORMATION:

Supplemental non-cash operating activity:

Cash paid for income taxes $ 15 $ —

Supplemental cash items:

Cash paid (received) for income taxes $ ( 1,128 ) $ ( 724 )

Cash paid for interest 26,483 25,445

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Summary of Significant Accounting Policies

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.

As of September 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

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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 $ 105.9 million as of June 30, 2021 and $ 72.0 million as of December 31, 2020.

Receivables from contracts with customers totaled $ 114.8 million as of September 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.

7 unchanged sentences

Derivative Instruments

Magnolia currently utilizes natural gas costless collars to reduce its exposure to price volatility for a portion of its natural gas production volumes.

As of September 30, 2021, the Company had settled all of its natural gas costless collar derivative contracts.

Prior to September 30, 2021, Magnolia utilized natural gas costless collars to reduce its exposure to price volatility for a portion of its natural gas production volumes.

The Company’s policies do not permit the use of derivative instruments for speculative purposes.

The Company’s natural gas costless collar derivative contracts are indexed to the Houston Ship Channel.

Under the Company’s costless collar contracts, each collar has an established floor price and ceiling price.

When the settlement price is below the floor price, the counterparty is required to make a payment to the Company and when the settlement price is above the ceiling price, the Company is required to make a payment to the counterparty.

When the settlement price is between the floor and the ceiling, there is no payment required.

Under the Company’s costless collar contracts, each collar had an established floor price and ceiling price.

When the settlement price was below the floor price, the counterparty was required to make a payment to the Company and when the settlement price was above the ceiling price, the Company was required to make a payment to the counterparty.

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 statements of operations.

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

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

The following table summarizes the effects of derivative instruments on the Company’s consolidated statements of operations during the three and nine months ended September 30, 2021 and 2020:

Three Months Ended Nine Months Ended

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

Derivative settlements, realized (loss) $ ( 2,666 ) $ — $ ( 2,833 ) $ —

Unrealized loss on derivatives 1,838 2,320

Unrealized gain (loss) on derivatives 2,043 ( 2,208 ) ( 277 ) ( 2,208 )

(Loss) on derivatives, net $ ( 623 ) $ ( 2,208 ) $ ( 3,110 ) $ ( 2,208 )

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:

Notional volume (MMBtu) 3,100,000

Weighted average floor price ($/MMBtu) $ 2.31

Weighted average ceiling price ($/MMBtu) $ 3.00

The Company had no outstanding derivative contracts in place as of September 30, 2021.

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

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

Level I - Quoted prices (unadjusted) in active markets for identical investments at the measurement date are used.

Level II - Pricing inputs are other than quoted prices included within Level I that are observable for the investment, either directly or indirectly.

Level II pricing inputs include quoted prices for similar investments in active markets, quoted prices for identical or similar investments in markets that are not active, inputs other than quoted prices that are observable for the investment, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level III - Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment.

Level 1 - Quoted prices (unadjusted) in active markets for identical investments at the measurement date are used.

Level 2 - Pricing inputs are other than quoted prices included within Level 1 that are observable for the investment, either directly or indirectly.

Level 2 pricing inputs include quoted prices for similar investments in active markets, quoted prices for identical or similar investments in markets that are not active, inputs other than quoted prices that are observable for the investment, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 - Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment.

The inputs used in determination of fair value require significant judgment and estimation.

1 unchanged sentence

Debt Obligations

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

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

September 30, 2021 December 31, 2020

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

Long-term debt $ 387,537 $ 410,880 $ 391,115 $ 407,500

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 fair value of the 2026 Senior Notes at September 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.

1 unchanged sentence

Derivative Instruments

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 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.

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:

Fair Value Measurements Using

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

June 30, 2021

Current assets:

Natural gas derivative instruments $ — $ — $ — $ — $ — $ —

Current liabilities:

Natural gas derivative instruments $ — $ 2,043 $ — $ 2,043 $ — $ 2,043

The Company had no outstanding derivative instruments as of September 30, 2021.

The fair values of the Company’s outstanding natural gas costless collar derivative instruments prior to September 30, 2021 were measured using an industry-standard pricing model and were provided by a third party.

The inputs used in the third-party pricing model included 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 outstanding as of December 31, 2020 were recorded at fair value within “Other current assets” on the Company’s consolidated balance sheet.

These fair values were recorded by netting asset and liability positions with the same counterparty and were subject to contractual terms that provided for net settlement.

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 as of December 31, 2020 that were required to be measured at fair value on a recurring basis:

Fair Value Measurements Using

5 unchanged sentences

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.

See Note 5 — Derivative Instruments for additional information on the Company’s derivative contracts.

Nonrecurring Fair Value Measurements

2 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 and six months ended June 30, 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 and six months ended June 30, 2021.

No impairments were recorded for the three and nine months ended September 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 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 July 31, 2018 (the “Closing Date”), the Company and EnerVest, separate and apart from the Business Combination, entered into the Non-Compete, which 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”).

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.

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

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

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

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

Accrued capital expenditures $ 28,802 $ 16,368

Accrued interest 10,000 10,000

Other 54,423 49,955

2 unchanged sentences

The Company’s debt is comprised of the following:

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

(In thousands) September 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 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.

The borrowing base as of September 30, 2021 was $ 450.0 million, which was reaffirmed in the semi-annual redetermination on October 15, 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.

Borrowings under the RBL Facility bear interest, at Magnolia Operating’s option, at a rate per annum equal to either the LIBOR rate or the alternative base rate plus the applicable margin.

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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 June 30, 2021, the Company was in compliance with all covenants under the RBL Facility.

As of September 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 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.

The Company recognized interest expense related to the RBL Facility of $ 1.0 million for each of the three months ended September 30, 2021 and 2020, and $ 3.1 million and $ 3.2 million for the nine months ended September 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 September 30, 2021.

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

2026 Senior Notes

6 unchanged sentences

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.

The Company also paid $ 5.0 million in fees to holders of the 2026 Senior Notes, which fees are recorded as deferred financing costs and amortized using the new effective interest rate applied prospectively over the remaining term of the 2026 Senior Notes.

As of September 30, 2021, the Company had incurred and capitalized a total of $ 16.8 million of deferred financing costs related to the issuance of, and the amendment to the Indenture governing, the 2026 Senior Notes.

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 Company’s consolidated balance sheet as of June 30, 2021.

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.

The Company recognized interest expense related to the 2026 Senior Notes of $ 6.5 million and $ 6.3 million for the three months ended September 30, 2021 and 2020, respectively, and $ 20.5 million and $ 19.0 million for the nine months ended September 30, 2021 and 2020, respectively.

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.

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

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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.

Certain of the Magnolia LLC Unit Holders and EnerVest Energy Institutional Fund XIV-C, L.P.

(collectively the “Co-Defendants”) 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 Magnolia LLC Unit Holders retained all such liability in connection with the Business Combination.

The Co-Defendants 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.

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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.

At September 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 September 30, 2021 or September 30, 2020.

Environmental Matters

7 unchanged sentences

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 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 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.

While oil and natural gas prices have increased in 2021, demand and pricing may again decline if there is a resurgence of the outbreak across the U.S.

or 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, including the emergence and spread of variant strains of COVID-19, 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 Six Months Ended

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

Three Months Ended Nine Months Ended

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

Federal $ 2,604 $ — $ 4,248 $ ( 1,167 )

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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 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 Company’s effective tax rate for the three months ended September 30, 2021 and 2020 was 2.2 % and negative 2.5 %, respectively.

The Company’s effective tax rate for the nine months ended September 30, 2021 and 2020 was 1.7 % and 4.0 %, respectively.

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 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.

As of September 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 September 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.

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.

During the nine months ended September 30, 2021, the Magnolia LLC Unit Holders redeemed 19.9 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 the Magnolia LLC Unit Holders.

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

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

As of June 30, 2021, the Company’s net deferred tax asset was $ 210.4 million.

As of September 30, 2021, the Company’s net deferred tax asset was $ 203.1 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.

1 unchanged sentence

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.

As of September 30, 2021, the Company assessed the realizability of the deferred tax assets and recorded a full valuation allowance of $ 203.1 million.

Stockholders’ Equity

Class A Common Stock

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.

At September 30, 2021, there were 189.6 million shares of Class A Common Stock issued and 178.2 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.

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Class B Common Stock

At June 30, 2021, there were 60.5 million shares of Class B Common Stock issued and outstanding.

At September 30, 2021, there were 52.9 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.

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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.

As of September 30, 2021, the Company had repurchased 11.5 million shares under the program at a cost of $ 112.8 million.

Dividends and Distributions

On August 2, 2021, Magnolia LLC declared a cash distribution of $ 0.08 per Magnolia LLC Unit totaling $ 19.0 million, of which $ 14.2 million was distributed to the Company and $ 4.8 million was distributed to the Magnolia LLC Unit Holders.

The distribution to the Magnolia LLC Unit Holders was recorded as a reduction of noncontrolling interest on the Company’s consolidated balance sheet as of September 30, 2021.

Cash Dividend

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 totaling approximately $ 14.2 million.

The dividend was paid on September 1, 2021 to shareholders of record as of the close of business on August 12, 2021.

Dividends in excess of retained earnings are recorded as a reduction of additional paid-in capital.

The $ 14.2 million dividend declared during the third quarter of 2021 was recorded as a reduction of additional paid-in capital on the Company’s consolidated balance sheet as of September 30, 2021.

Noncontrolling Interest

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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).

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.

During the nine months ended September 30, 2021 Magnolia LLC repurchased and subsequently canceled 13.0 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock for $ 171.7 million of cash consideration (the “Class B Common Stock Repurchases”).

During the same period, the Magnolia LLC Unit Holders redeemed 19.9 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 the Magnolia LLC Unit Holders.

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 %.

As of September 30, 2021, Magnolia owned approximately 77.1 % of the interest in Magnolia LLC and the noncontrolling interest was 22.9 %.

Subsequent to September 30, 2021, the Magnolia LLC Unit Holders redeemed an additional 3.6 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.

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

A total of 16.8 million shares of Class A Common Stock have been authorized for issuance under the Plan as of September 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 $ 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.

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 $ 2.9 million for each of the three months ended September 30, 2021 and 2020, and $ 9.1 million and $ 8.9 million for the nine months ended September 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 for the three months ended June 30, 2021.

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

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

Granted 24,913 14.82 — — — —

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Forfeited ( 26,461 ) 8.23 ( 28,363 ) 8.80 ( 37,854 ) 9.33

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.

Unvested at September 30, 2021 1,469,214 $ 8.85 460,414 $ 9.20 972,637 $ 9.36

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

Restricted Stock Units Performance Stock Units Performance Restricted Stock Units

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Forfeited ( 91,470 ) 9.46 ( 103,511 ) 9.04 ( 39,693 ) 9.33

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

Unvested at September 30, 2021 1,469,214 $ 8.85 460,414 $ 9.20 972,637 $ 9.36

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 June 30, 2021 was $ 9.6 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 September 30, 2021 was $ 7.9 million, which the Company expects to recognize over a weighted average period of 1.9 years.

Performance Stock Units and Performance Restricted Stock Units

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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 June 30, 2021 was $ 8.3 million, which the Company expects to recognize over a weighted average period of 2.8 years.

Unrecognized compensation expense related to unvested PRSUs as of September 30, 2021 was $ 7.3 million, which the Company expects to recognize over a weighted average period of 2.5 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 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.

Unrecognized compensation expense related to unvested PSUs as of September 30, 2021 was $ 1.0 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 nine months ended September 30, 2021 and the PSUs granted during the nine months ended September 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.

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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

Nine Months Ended

PRSU and PSU Grant Date Fair Value Assumptions September 30, 2021 September 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:

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

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

Net income (loss) attributable to Class A Common Stock $ 119,364 $ 9,147 $ 267,053 $ ( 1,236,135 )

Undistributed earnings allocated to participating securities 642 — 819 —

Dividends and net income allocated to participating securities 939 — 1,714 —

Net income (loss), net of participating securities $ 118,425 $ 9,147 $ 265,339 $ ( 1,236,135 )

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Net income (loss) attributable to Class A Common Stock $ 119,364 $ 9,147 $ 267,053 $ ( 1,236,135 )

Undistributed earnings reallocated to participating securities 638 — 814 —

Dividends and net income allocated to participating securities 934 — 1,705 —

Net income (loss), net of participating securities $ 118,430 $ 9,147 $ 265,348 $ ( 1,236,135 )

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$ 0.67 $ 0.05 $ 1.53 $ ( 7.41 )

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.

For the three and nine months ended September 30, 2021, the Company excluded 60.4 million and 68.8 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 nine months ended September 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).

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

Related Party Transactions

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.”

As of September 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.”

Distributions

On August 2, 2021, Magnolia LLC declared a cash distribution of $ 0.08 per Magnolia LLC Unit totaling $ 19.0 million, of which $ 3.2 million was distributed to EnerVest Energy Institutional Fund XIV-A, L.P.

Class B Common Stock Repurchases and Redemptions

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

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

received $ 113.6 million in cash and surrendered 8.6 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 13.2 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, which were subsequently sold to the public.

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

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.

Subsequent to September 30, 2021, EnerVest Energy Institutional Fund XIV-A, L.P.

redeemed an additional 2.4 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.

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