What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-02 compared with 2021-08-03 · 104 added, 103 removed, 191 unchanged (52% of the section changed)

7 unchanged sentences

Important factors that could cause actual results to differ materially from the Company’s expectations include, but are not limited to, Magnolia’s assumptions about:

• the length, scope, and severity of the ongoing coronavirus disease 2019 (“COVID-19”) pandemic, including the effects of related public health concerns and the impact of continued actions taken by governmental authorities and other third parties in response to the pandemic and its impact on commodity prices, and supply and demand considerations;

• the length, scope, and severity of the ongoing coronavirus disease 2019 (“COVID-19”) pandemic (including the emergence and spread of variant strains of COVID-19), including the effects of related public health concerns and the impact of continued or new actions taken by governmental authorities and other third parties in response to the pandemic and its impact on commodity prices and supply and demand considerations;

• legislative, regulatory, or policy changes, including those following the change in presidential administrations;

19 unchanged sentences

Magnolia’s objective is to generate stock market value over the long-term through consistent organic production growth, high full cycle operating margins, an efficient capital program with short economic paybacks, significant free cash flow after capital expenditures, and effective reinvestment of free cash flow.

Magnolia’s business model prioritizes free cash flow, financial stability, and prudent capital allocation, and is designed to withstand challenging environments such as the one the Company is currently experiencing.

Magnolia’s business model prioritizes free cash flow, financial stability, and prudent capital allocation, and is designed to withstand challenging environments.

COVID-19 Pandemic and Market Conditions Update

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

Governments have tried to slow the spread of the virus by imposing social distancing guidelines, travel restrictions, and stay-at-home orders, which have caused a significant decrease in activity in the global economy and the demand for oil and natural gas.

The implications of the decrease in global demand for, 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.

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

The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the oil and natural gas industry.

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, vaccination protocols, 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 Magnolia’s industry and business cannot be reasonably predicted at this time.

In order to protect the health and safety of its workers, Magnolia and its contractors have implemented protocols to reduce the risk of an outbreak of COVID-19, or variants of COVID-19, within the Company’s operations, and these protocols have not reduced production or efficiency in a significant manner.

Magnolia's board of directors is continuing to closely monitor the unfolding COVID-19 pandemic.

Magnolia has been able to maintain a consistent level of effectiveness, including maintaining day-to-day operations, financial reporting systems, and internal control over financial reporting.

Magnolia’s business model prioritizes free cash flow, financial stability, and prudent capital allocation, and is designed to withstand challenging environments.

The Company’s ongoing plan is to spend within cash flow on drilling and completing wells while maintaining low leverage.

During the majority of the second quarter of 2021, Magnolia operated one rig in the Giddings area.

The Company added a second rig at the end of the second quarter which is currently drilling wells in the Giddings area.

The Company is well positioned to reduce or increase operations given the significant flexibility within its capital program, as its operated drilling rig is on a short-term contract and the Company has no long-term service obligations.

During the third quarter of 2021, Magnolia operate d one rig exclusively in the Giddings area, and one rig in both the Karnes and Giddings areas.

The Company is well positioned to reduc e or increase operations given the significant flexibility within its capital program, as its operated drilling rigs are on short-term contracts and the Company has no long-term service obligations.

Moreover, Magnolia does not have any contractual drilling obligations and nearly all of the Company’s acreage is held by production.

In order to protect the health and safety of its workers, Magnolia and its contractors have implemented protocols to reduce the risk of an outbreak within the Company’s operations, and these protocols have not reduced production or efficiency in a significant manner.

Magnolia's board of directors is continuing to closely monitor the unfolding COVID-19 pandemic.

Magnolia has been able to maintain a consistent level of effectiveness, including maintaining day-to-day operations, financial reporting systems, and internal control over financial reporting.

Business Overview

As of June 30, 2021, Magnolia’s assets in South Texas included 42,972 gross (23,513 net) acres in the Karnes area, and 652,113 gross (452,496 net) acres in the Giddings area.

As of June 30, 2021, Magnolia held an interest in approximately 1,949 gross (1,237 net) wells, with total production of 64.9 thousand and 63.6 thousand barrels of oil equivalent per day (“Mboe/d”) for the three and six months ended June 30, 2021, respectively.

The Company primarily operated one rig in the Giddings area for the first six months of 2021 and added a second rig at the end of the second quarter.

Magnolia recognized net income attributable to Class A Common Stock of $84.4 million and $147.7 million, or $0.48 and $0.85 per diluted common share, for the three and six months ended June 30, 2021, respectively.

Magnolia recognized net income of $116.2 million and $207.7 million, which includes a noncontrolling interest of $31.7 million and $60.0 million related to the Magnolia LLC Units (and corresponding Class B Common Stock) held by certain affiliates of EnerVest for the three and six months ended June 30, 2021, respectively.

As of September 30, 2021, Magnolia’s assets in South Texas included 42,970 gross (23,513 net) acres in the Karnes area, and 655,942 gross (454,687 net) acres in the Giddings area.

As of September 30, 2021, Magnolia held an interest in approximately 1,966 gross (1,255 net) wells, with total production of 67.4 thousand and 64.9 thousand barrels of oil equivalent per day (“Mboe/d”) for the three and nine months ended September 30, 2021, respectively.

During the third quarter of 2021, Magnolia was running a two-rig program.

One rig drilled multi-well development pads exclusively in the Giddings area.

The second rig drilled a mix of wells in both the Karnes and Giddings areas.

Magnolia recognized net income attributable to Class A Common Stock of $119.4 million and $267.1 million , or $0.67 and $1.53 per diluted common share, f or the three and nine months ended September 30, 2021, respectively.

Magnolia recognized net income of $159.9 million and $367.6 million, which includes a noncontrolling interest of $40.5 million and $100.5 million related to the Magnolia LLC Units (and corresponding shares of Class B Common Stock) held by certain affiliates of EnerVest, for the three and nine months ended September 30, 2021, respectively.

The Company’s board of directors has authorized a share repurchase program of up to 20.0 million shares.

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 an aggregate cost of $83.3 million.

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.

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

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”).

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%.

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.

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

Results of Operations

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• During the second quarter of 2021, the Company amended the term of the Services Agreement to end on June 30, 2021.

As part of the termination and transition of the Services Agreement, the Company incurred $11.2 million for the six months ended June 30, 2021, included in “General and administrative expenses” on the Company’s consolidated statements of operations.

• During the second quarter of 2021, the Company amended the Non-Compete (the “Second Non-Compete Amendment”), which modified the term of the Non-Compete to end on June 30, 2021, resulting in the Company accelerating the amortization of the intangible assets by approximately $5.9 million.

As part of the termination and transition of the Services Agreement, the Company incurred $11.2 million for the nine months ended September 30, 2021, included in “General and administrative expenses” on the Company’s consolidated statements of operations.

• The 2026 Senior Notes issued under the Indenture, dated as of July 31, 2018 (the “Indenture”), were amended on April 5, 2021.

1 unchanged sentence

As a result of the factors listed above, the historical results of operations and period-to-period comparisons of these results and certain financial data may not be comparable or indicative of future results.

Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020

Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020

Oil, Natural Gas and NGL Sales Revenues.

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Three Months Ended

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

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

Oil (MBbls) 2,851 2,485

15 unchanged sentences

NGLs (per barrel) 31.60 11.20

Oil revenues were 75% and 73% of the Company’s total revenues for the three months ended June 30, 2021 and 2020, respectively.

Oil production was 49% and 53% of total production volume for the three months ended June 30, 2021 and 2020, respectively.

Oil revenues for the three months ended June 30, 2021 were $127.3 million higher than the three months ended June 30, 2020.

A 229% increase in average prices increased second quarter 2021 revenues by $139.4 million, while a 6% decrease in oil production reduced revenues by $12.1 million compared to the same period in the prior year.

Natural gas revenues were 13% and 16% of the Company’s total revenues for the three months ended June 30, 2021 and 2020, respectively.

Natural gas production was 28% of total production volume for each of the three months ended June 30, 2021 and 2020.

Natural gas revenues for the three months ended June 30, 2021 were $19.4 million higher than the three months ended June 30, 2020.

A 143% increase in average prices increased second quarter 2021 revenues by $18.8 million compared to the same period in the prior year, while a 2% increase in natural gas production increased revenues by $0.6 million.

NGL revenues were 12% and 11% of the Company’s total revenues for the three months ended June 30, 2021 and 2020, respectively.

NGL production was 23% and 19% of total production volume for the three months ended June 30, 2021 and 2020, respectively.

NGL revenues for the three months ended June 30, 2021 were $21.2 million higher than the three months ended June 30, 2020.

A 181% increase in average prices increased second quarter 2021 revenues by $16.1 million compared to the same period in the prior year, while a 20% increase in NGL production increased revenues by $5.1 million.

Oil revenues were 69% and 79% of the Company’s total revenues for the three months ended September 30, 2021 and 2020, respectively.

Oil production was 46% and 50% of total production volume for the three months ended September 30, 2021 and 2020, respectively.

Oil revenues for the three months ended September 30, 2021 were $99.5 million higher than the three months ended September 30, 2020.

A 78% increase in average prices increased third quarter 2021 revenues by $74.5 million, while a 15% increase in oil production increased revenues by $25.0 million compared to the same period in the prior year.

Natural gas revenues were 15% and 12% of the Company’s total revenues for the three months ended September 30, 2021 and 2020, respectively.

Natural gas production was 31% of total production volume for each of the three months ended September 30, 2021 and 2020.

Natural gas revenues for the three months ended September 30, 2021 were $27.9 million higher than the three months ended September 30, 2020.

A 137% increase in average prices increased third quarter 2021 revenues by $20.5 million compared to the same period in the prior year, while a 21% increase in natural gas production increased revenues by $7.4 million.

NGL revenues were 16% and 9% of the Company’s total revenues for the three months ended September 30, 2021 and 2020, respectively.

NGL production was 23% and 19% of total production volume for the three months ended September 30, 2021 and 2020, respectively.

NGL revenues for the three months ended September 30, 2021 were $35.1 million higher than the three months ended September 30, 2020.

A 182% increase in average prices increased third quarter 2021 revenues by $19.1 million compared to the same period in the prior year, while a 54% increase in NGL production increased revenues by $16.0 million.

Operating Expenses and Other Income (Expense) .

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Three Months Ended

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

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

Operating Expenses:

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Lease operating expenses are costs incurred in the operation of producing properties, including expenses for utilities, direct labor, water disposal, workover rigs, workover expenses, materials, and supplies.

Lease operating expenses for the three months ended June 30, 2021 were $3.7 million, or $0.58 per boe, higher compared to the corresponding 2020 period, due to an increase in costs including workover activities and additional non-operated activities.

Lease operating expenses for the three months ended September 30, 2021 were $4.8 million, or $0.05 per boe, higher compared to the corresponding 2020 period, due to an increase in costs including operating and maintenance costs, workover activities and additional non-operated activities.

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

These expenses can vary based on the volume of oil, natural gas, and NGLs produced as well as the cost of commodity processing.

The gathering, transportation and processing costs for the three months ended June 30, 2021 were $2.2 million, or $0.36 per boe, higher than the three months ended June 30, 2020, primarily due to increased natural gas production and higher prices.

The gathering, transportation and processing costs for the three months ended September 30, 2021 were $4.3 million, or $0.47 per boe, higher than the three months ended September 30, 2020, primarily due to increased natural gas production and higher prices.

Taxes other than income include production and ad valorem taxes.

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

Taxes other than income for the three months ended June 30, 2021 were $8.3 million, or $1.39 per boe, higher compared to the three months ended June 30, 2020, primarily due to an increase in oil, natural gas, and NGL revenues.

Exploration expenses are geological and geophysical costs that include unproved property impairments, seismic surveying costs, costs of expired or abandoned leases, and delay rentals.

Exploration expenses for the three months ended June 30, 2021 were lower than the three months ended June 30, 2020 by $6.4 million, or $1.10 per boe, due to lower leasehold abandonment expenses related to the Company’s unproved natural gas properties.

Depreciation, depletion and amortization (“DD&A”) during the three months ended June 30, 2021 was $7.5 million, or $1.38 per boe, lower than the three months ended June 30, 2020, primarily as a result of shifting activity from the Karnes area to the Giddings area, which has a lower DD&A rate.

Amortization of intangible assets during the three months ended June 30, 2021 was $3.6 million, or $0.60 per boe, higher than the three months ended June 30, 2020, driven by the accelerated amortization of the intangible assets as a result of the termination of the Non-Compete.

General and administrative (“G&A”) expenses during the three months ended June 30, 2021 were $9.0 million, or $1.50 per boe, higher than the three months ended June 30, 2020, primarily driven by costs associated with the termination of the Services Agreement and increased corporate payroll expenses related to increased employee headcount.

Interest expense, net, during the three months ended June 30, 2021 was $1.5 million higher than the three months ended June 30, 2020, driven by third-party costs associated with the debt modification pursuant to the amendment of the Indenture in the second quarter of 2021.

Loss on derivatives, net, was $2.0 million related to the Company’s natural gas costless collar entered into during the third quarter of 2020.

There was no derivative activity in the corresponding 2020 period.

Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020

Taxes other than income for the three months ended September 30, 2021 were $6.8 million, or $0.80 per boe, higher compared to the three months ended September 30, 2020, primarily due to an increase in oil, natural gas, and NGL revenues.

Depreciation, depletion and amortization (“DD&A”) during the three months ended September 30, 2021 was $3.3 million higher than the three months ended September 30, 2020 due to increased production.

DD&A was $1.21 lower per boe over the same comparison period, primarily as a result of increased production in the Giddings area, which has a lower DD&A rate.

For the three months ended September 30, 2021, the Company did not recognize any amortization of intangible assets, because the intangible assets were fully amortized in June 2021 as a result of the termination of the Non-Compete.

During the three months ended September 30, 2020, the Company recognized $3.6 million of amortization of intangible assets.

General and administrative (“G&A”) expenses during the three months ended September 30, 2021 were $2.0 million, or $0.97 per boe, lower than the three months ended September 30, 2020, primarily driven by the reduction in costs due to the termination of the Services Agreement in June 2021, partially offset by higher corporate payroll expenses related to increased employee headcount.

Loss on derivatives, net, during the three months ended September 30, 2021 was $1.6 million lower than the three months ended September 30, 2020, primarily driven by the full settlement of the Company’s derivative instruments at the end of the third quarter of 2021.

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

Oil, Natural Gas and NGL Sales Revenues.

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

Six Months Ended

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

Nine Months Ended

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

Oil (MBbls) 8,346 8,965

15 unchanged sentences

NGLs (per barrel) 24.93 9.30

Oil revenues were 73% and 82% of the Company’s total revenues for the six months ended June 30, 2021 and 2020, respectively.

Oil production was 48% and 54% of total production volume for the six months ended June 30, 2021 and 2020, respectively.

Oil revenues for the six months ended June 30, 2021 were $119.0 million higher than the six months ended June 30,

An 83% increase in average prices increased second quarter 2021 revenues by $178.9 million, while a 15% decrease in oil production reduced revenues by $59.9 million compared to the same period in the prior year.

Natural gas revenues were 15% and 11% of the Company’s total revenues for the six months ended June 30, 2021 and 2020, respectively.

Natural gas production was 29% and 27% of total production volume for the six months ended June 30, 2021 and 2020, respectively.

Natural gas revenues for the six months ended June 30, 2021 were $38.0 million higher than the six months ended June 30, 2020.

A 125% increase in average prices increased second quarter 2021 revenues by $36.8 million compared to the same period in the prior year, while a 2% increase in natural gas production increased revenues by $1.2 million.

NGL revenues were 12% and 7% of the Company’s total revenues for the six months ended June 30, 2021 and 2020, respectively.

NGL production was 23% and 19% of total production volume for the six months ended June 30, 2021 and 2020, respectively.

NGL revenues for the six months ended June 30, 2021 were $37.1 million higher than the six months ended June 30, 2020.

A 150% increase in average prices increased second quarter 2021 revenues by $29.1 million compared to the same period in the prior year, while a 17% increase in NGL production increased revenues by $8.0 million.

Oil revenues were 71% and 81% of the Company’s total revenues for the nine months ended September 30, 2021 and 2020, respectively.

Oil production was 47% and 53% of total production volume for the nine months ended September 30, 2021 and 2020, respectively.

Oil revenues for the nine months ended September 30, 2021 were $218.5 million higher than the nine months ended September 30, 2020.

An 83% increase in average prices increased third quarter 2021 revenues by $257.7 million, while a 7% decrease in oil production reduced revenues by $39.2 million compared to the same period in the prior year.

Natural gas revenues were 15% and 11% of the Company’s total revenues for the nine months ended September 30, 2021 and 2020, respectively.

Natural gas production was 30% and 28% of total production volume for the nine months ended September 30, 2021 and 2020, respectively.

Natural gas revenues for the nine months ended September 30, 2021 were $65.9 million higher than the nine months ended September 30, 2020.

A 131% increase in average prices increased third quarter 2021 revenues by $57.7 million compared to the same period in the prior year, while an 8% increase in natural gas production increased revenues by $8.2 million.

NGL revenues were 14% and 8% of the Company’s total revenues for the nine months ended September 30, 2021 and 2020, respectively.

NGL production was 23% and 19% of total production volume for the nine months ended September 30, 2021 and 2020, respectively.

NGL revenues for the nine months ended September 30, 2021 were $72.3 million higher than the nine months ended September 30, 2020.

A 168% increase in average prices increased third quarter 2021 revenues by $50.2 million compared to the same period in the prior year, while a 28% increase in NGL production increased revenues by $22.1 million.

Operating Expenses and Other Income (Expense) .

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

Six Months Ended

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

Nine Months Ended

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

Operating Expenses:

25 unchanged sentences

General and administrative expenses 3.38 2.96

Lease operating expenses for the six months ended June 30, 2021 were $1.1 million lower than the six months ended June 30, 2020, and $0.07 per boe higher, primarily due to lower production.

Gathering, transportation and processing costs for the six months ended June 30, 2021 were $3.0 million, or $0.31 per boe, higher than the six months ended June 30, 2020, primarily due to increased natural gas production and higher prices.

Taxes other than income for the six months ended June 30, 2021 were $9.0 million, or $0.84 per boe, higher compared to the six months ended June 30, 2020, primarily due to an increase in oil, natural gas, and NGL revenues.

Exploration expenses for the six months ended June 30, 2021 were lower than the six months ended June 30, 2020 by $560.8 million, or $46.50 per boe, as a result of an impairment recorded for the quarter ended March 31, 2020 related to Magnolia’s unproved oil and natural gas properties due to the sharp decline in commodity prices.

Lease operating expenses for the nine months ended September 30, 2021 were $3.7 million, or $0.08 per boe, higher than the nine months ended September 30, 2020, due to an increase in operating and maintenance costs.

Gathering, transportation and processing costs for the nine months ended September 30, 2021 were $7.3 million, or $0.36 per boe, higher than the nine months ended September 30, 2020, primarily due to increased natural gas production and higher prices.

Taxes other than income for the nine months ended September 30, 2021 were $15.8 million, or $0.84 per boe, higher compared to the nine months ended September 30, 2020, primarily due to an increase in oil, natural gas, and NGL revenues.

Exploration expenses are geological and geophysical costs that include unproved property impairments, seismic surveying costs, costs of expired or abandoned leases, and delay rentals.

Exploration expenses for the nine months ended September 30, 2021 were lower than the nine months ended September 30, 2020 by $561.1 million, or $32.91 per boe, as a result of an impairment recorded for the quarter ended March 31, 2020 related to Magnolia’s unproved oil and natural gas properties due to the sharp decline in commodity prices.

For more information, please see Note 6—Fair Value Measurements in the Company’s Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

For the six months ended June 30, 2021, the Company did not recognize any impairments.

For the six months ended June 30, 2020, the Company recognized $1.4 billion of impairment included in “Impairment of oil and natural gas properties” in the consolidated statements of operations related to its proved oil and natural gas properties.

For the nine months ended September 30, 2021, the Company did not recognize any impairments.

For the nine months ended September 30, 2020, the Company recognized $1.4 billion of impairment included in “Impairment of oil and natural gas properties” in the consolidated statements of operations related to its proved oil and natural gas properties.

The impairment was driven by the sharp decline in commodity prices.

For more information, please see Note 6—Fair Value Measurements in the Company’s Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

DD&A during the six months ended June 30, 2021 was $107.3 million, or $8.56 per boe, lower than the six months ended June 30, 2020, primarily as a result of lower oil and natural gas property balances associated with proved property impairments recorded in the first quarter of 2020.

Amortization of intangible assets during the six months ended June 30, 2021 was $2.1 million, or $0.21 per boe, higher than the six months ended June 30, 2020, driven by the accelerated amortization of the intangible assets as a result of the termination of the Non-Compete.

G&A expenses during the six months ended June 30, 2021 were $11.3 million, or $1.12 per boe, higher than the six months ended June 30, 2020, primarily driven by costs associated with the termination of the Services Agreement and increased corporate payroll expenses related to increased employee headcount.

Interest expense, net, during the six months ended June 30, 2021 was $2.0 million higher than the six months ended June 30, 2020, driven by third-party costs associated with the debt modification pursuant to the amendment of the Indenture in the second quarter of 2021.

Loss on derivatives, net, was $2.5 million related to the Company’s natural gas costless collar entered into during the third quarter of 2020.

There was no derivative activity in the corresponding 2020 period.

DD&A during the nine months ended September 30, 2021 was $104.0 million, or $6.39 per boe, lower than the nine months ended September 30, 2020, primarily as a result of lower oil and natural gas property balances associated with proved property impairments recorded in the first quarter of 2020.

Amortization of intangible assets during the nine months ended September 30, 2021 was $1.5 million, or $0.11 per boe, lower than the nine months ended September 30, 2020, driven by fewer months of amortization during the nine months ended September 30, 2021 as compared to the same period in the prior year partially offset by the accelerated amortization of the intangible assets in the second quarter of 2021 as a result of the termination of the Non-Compete.

G&A expenses during the nine months ended September 30, 2021 were $9.3 million, or $0.42 per boe, higher than the nine months ended September 30, 2020, primarily driven by costs associated with the termination of the Services Agreement and increased corporate payroll expenses related to increased employee headcount.

Interest expense, net, during the nine months ended September 30, 2021 was $2.2 million higher than the nine months ended September 30, 2020, driven by third-party costs associated with the debt modification pursuant to the amendment of the Indenture in the second quarter of 2021.

Loss on derivatives, net, during the nine months ended September 30, 2021 was $0.9 million higher than the nine months ended September 30, 2020, primarily driven by higher natural gas prices.

Liquidity and Capital Resources

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The Company anticipates its current cash balance, cash flows from operations, and its available sources of liquidity to be sufficient to meet the Company’s cash requirements.

As of June 30, 2021, the Company had $400.0 million of principal debt related to the 2026 Senior Notes outstanding and no outstanding borrowings related to the RBL Facility.

As of June 30, 2021, the Company had $640.3 million of liquidity comprised of the $450.0 million of borrowing base capacity of the RBL Facility, which was reaffirmed on April 12, 2021, and $190.3 million of cash and cash equivalents.

As of September 30, 2021, the Company had $400.0 million of principal debt related to the 2026 Senior Notes outstanding and no outstanding borrowings related to the RBL Facility.

As of September 30, 2021, the Company had $695.0 million of liquidity comprised of the $450.0 million of borrowing base capacity of the RBL Facility, which was reaffirmed on October 15, 2021, and $245.0 million of cash and cash equivalents.

Cash and Cash Equivalents

At June 30, 2021, Magnolia had $190.3 million of cash and cash equivalents.

At September 30, 2021, Magnolia had $245.0 million of cash and cash equivalents.

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

Deposits with these institutions may exceed the amount of

insurance provided on such deposits.

Deposits with these institutions may exceed the amount of insurance provided on such deposits.

However, the Company regularly monitors the financial stability of such financial institutions and believes that the Company is not exposed to any significant default risk.

1 unchanged sentence

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

Six Months Ended

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

Nine Months Ended

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

Sources of cash and cash equivalents

5 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) —

Distributions to noncontrolling interest owners (5,706) (594)

Other (10,477) (1,544)

(475,473) (265,099)

Decrease in cash and cash equivalents $ (2,279) $ (65,783)

Increase (decrease) in cash and cash equivalents $ 52,462 $ (34,100)

Sources of Cash and Cash Equivalents

2 unchanged sentences

The factors that determine operating cash flows are largely the same as those that affect net earnings or net losses, with the exception of certain non-cash expenses such as DD&A, the non-cash portion of exploration expense, impairment of oil and natural gas properties, asset retirement obligations accretion, and deferred income tax expense.

Net cash provided by operating activities totaled $306.0 million and $165.8 million for the six months ended June 30, 2021 and 2020, respectively.

During the six months ended June 30, 2021, cash provided by operating activities was positively impacted by increased oil, natural gas, and NGL prices, partially offset by an increase in accounts receivable, additional costs associated with the termination of the Services Agreement and higher production tax payments.

Net cash provided by operating activities totaled $527.9 million and $231.0 million for the nine months ended September 30, 2021 and 2020, respectively.

During the nine months ended September 30, 2021, cash provided by operating activities was positively impacted by increased oil, natural gas, and NGL prices, partially offset by an increase in accounts receivable, additional costs associated with the termination of the Services Agreement and higher production tax payments.

Uses of Cash and Cash Equivalents

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

The Company did not make any major acquisitions during the six months ended June 30, 2021.

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

The Company made individually insignificant bolt-on acquisitions during the nine months ended September 30, 2021.

Additions to Oil and Natural Gas Properties

The following table sets forth the Company’s capital expenditures for the three and six months ended June 30, 2021 and 2020:

Three Months Ended Six Months Ended

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

The following table sets forth the Company’s capital expenditures for 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

Drilling and completion $ 67,180 $ 27,425 $ 159,838 $ 155,308

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Total capital expenditures $ 68,388 $ 27,674 $ 162,744 $ 157,325

During the six months ended June 30, 2021, Magnolia was running primarily a one-rig program for the Giddings Assets.

The activity during this period was largely driven by the number of operated and non-operated drilling rigs.

During the third quarter of 2021, Magnolia was running a two-rig program.

One rig drilled multi-well development pads in our Giddings area.

The second rig drilled a mix of wells in both the Karnes and Giddings areas.

The number of operated drilling rigs is largely dependent on commodity prices and the Company’s strategy of maintaining spending to accommodate the Company’s business model.

The Company added a second rig at the end of the second quarter which is currently drilling wells in the Giddings area.

Capital Requirements

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The program does not require purchases to be made within a particular time frame and whether the Company undertakes these additional repurchases is ultimately subject to numerous considerations, market conditions, and other factors.

During the six months ended June 30, 2021 and 2020, the Company repurchased 4.0 million and 1.0 million shares for a total cost of approximately $44.3 million and $6.5 million, respectively.

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”).

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

During the nine months ended September 30, 2021 and 2020, the Company repurchased 6.0 million and 2.1 million shares for a total cost of approximately $73.8 million and $13.0 million, respectively.

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

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 July 31, 2018 (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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As part of the Second Non-Compete Amendment, the Company paid $24.9 million in cash in lieu of delivering the remaining 1.6 million shares of Class A Common Stock.

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, of which $14.1 million was paid as of September 30, 2021.

In addition, $4.8 million was distributed to the Magnolia LLC Unit Holders.

The amount and frequency of future dividends is subject to the discretion of the Company’s board of directors and primarily depends on earnings, capital expenditures, debt covenants, and various other factors.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis