What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-02 · 73 added, 154 removed, 141 unchanged (62% of the section changed)

12 unchanged sentences

• production and reserve levels;

• geopolitical and business conditions in key regions of the world;

• drilling risks;

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All of Magnolia’s forward-looking information is subject to risks and uncertainties that could cause actual results to differ materially from the results expected.

Although it is not possible to identify all factors, these risks and uncertainties include the risk factors and the timing of any of those risk factors identified in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the period ended December 31, 2020 (the “2020 Form 10-K”).

Although it is not possible to identify all factors, these risks and uncertainties include the risk factors and the timing of any of those risk factors identified in the reports that we have filed and may file with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the period ended December 31, 2021 (the “2021 Form 10-K”).

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s unaudited consolidated financial statements and the related notes thereto.

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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.

As of March 31, 2022, Magnolia operated one rig exclusively in the Giddings area, and one rig in both the Karnes and Giddings areas.

The Company is well positioned to reduce or increase operations given the significant flexibility within its capital program as the Company has no long-term service obligations.

COVID-19 Pandemic and Market Conditions Update

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 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.

As the global economy continues to recover from the effects of the COVID-19 pandemic, economic indicators have continued to strengthen.

However, the economy has begun to experience elevated inflation levels as a result of global supply and demand imbalances.

Inflationary pressures and labor shortages could result in increases to our operating and capital costs.

Business Overview

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.

As of March 31, 2022, Magnolia’s assets in South Texas included 43,518 gross (23,793 net) acres in the Karnes area, and 638,830 gross (447,415 net) acres in the Giddings area.

As of March 31, 2022, Magnolia held an interest in approximately 2,020 gross (1,292 net) wells, with total production of 71.8 thousand barrels of oil equivalent per day for the three months ended March 31, 2022.

During the first quarter of 2022, 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.

Magnolia recognized net income attributable to Class A Common Stock of $166.0 million, or $0.90 per diluted common share, for the three months ended March 31, 2022.

Magnolia recognized net income of $208.6 million, which includes a noncontrolling interest of $42.6 million related to the Magnolia LLC Units (and corresponding shares of Class B Common Stock) held by certain affiliates of EnerVest, for the three months ended March 31, 2022.

On February 3, 2022, the Company’s board of directors declared a semi-annual cash dividend of $0.20 per share of Class A Common Stock totaling approximately $37.3 million.

The dividend was paid on March 1, 2022 to shareholders of record as of the close of business on February 14, 2022.

The Company’s board of directors has authorized a share repurchase program of up to 30.0 million shares.

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

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”).

As of March 31, 2022, the Company had repurchased 15.7 million shares under the program at a cost of $197.9 million.

During the three months ended March 31, 2022, the Company also repurchased 0.6 million shares of Class A Common Stock for $11.6 million from EnerVest Energy Institutional Fund XIV-C, L.P.

outside of the share repurchase program.

During the three months ended March 31, 2022, Magnolia LLC repurchased and subsequently canceled 3.9 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock for $84.7 million of cash consideration (the “Class B Common Stock Repurchases”).

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

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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%.

As of March 31, 2022, Magnolia owned approximately 84.0% of the interest in Magnolia LLC and the noncontrolling interest was approximately 16.0%.

Results of Operations

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Magnolia’s historical financial condition and results of operations for the periods presented may not be comparable, either from period to period or going forward, as a result of the following factors:

• On February 16, 2022, Magnolia Operating, as borrower, amended and restated the RBL Facility (“Amended and Restated RBL Facility”) in its entirety, which will now mature in February 2026.

• 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 nine months ended September 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 $5.9 million.

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

• 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.

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

This debt modification included approximately $1.1 million of one-time transaction fees which were expensed and $5.0 million in fees paid to holders of the 2026 Senior Notes, which were reflected as deferred financing costs reducing Long-term debt and will be amortized over the remaining term of the 2026 Senior Notes.

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

Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

Oil, Natural Gas and NGL Sales Revenues.

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Three Months Ended

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

(In thousands, except per unit data) March 31, 2022 March 31, 2021

Oil (MBbls) 2,816 2,593

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NGLs (per barrel) 36.94 20.31

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.

Oil revenues were 70% of the Company’s total revenues for each of the three months ended March 31, 2022 and 2021.

Oil production was 44% and 46% of total production volume for the three months ended March 31, 2022 and 2021, respectively.

Oil revenues for the three months ended March 31, 2022 were $115.7 million higher than the three months ended March 31, 2021.

A 65% increase in average prices increased first quarter 2022 revenues by $94.9 million, while a 9% increase in oil production increased revenues by $20.8 million compared to the same period in the prior year.

Natural gas revenues were 14% and 17% of the Company’s total revenues for the three months ended March 31, 2022 and 2021, respectively.

Natural gas production was 32% and 30% of total production volume for the three months ended March 31, 2022 and 2021, respectively.

Natural gas revenues for the three months ended March 31, 2022 were $20.9 million higher than the three months ended March 31, 2021.

A 31% increase in average prices increased first quarter 2022 revenues by $11.1 million compared to the same period in the prior year, while a 21% increase in natural gas production increased revenues by $9.8 million.

NGL revenues were 16% and 13% of the Company’s total revenues for the three months ended March 31, 2022 and 2021, respectively.

NGL production was 24% and 23% of total production volume for the three months ended March 31, 2022 and 2021, respectively.

NGL revenues for the three months ended March 31, 2022 were $32.1 million higher than the three months ended March 31, 2021.

An 82% increase in average prices increased first quarter 2022 revenues by $21.7 million compared to the same period in the prior year, while a 22% increase in NGL production increased revenues by $10.4 million.

Operating Expenses and Other Income (Expense) .

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Three Months Ended

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

(In thousands, except per unit data) March 31, 2022 March 31, 2021

Operating Expenses:

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Other Income (Expense):

Income from equity method investee $ — $ 1,007

Interest expense, net $ (9,357) $ (7,294)

Loss on derivatives, net — (482)

Other income, net 142 (51)

Other income (expense), net 207 (229)

Total other expense, net $ (9,150) $ (8,005)

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Taxes other than income 3.23 1.92

Exploration expense 0.05 0.14

Exploration expenses 0.86 0.37

Asset retirement obligations accretion 0.12 0.24

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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 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.

Lease operating expenses for the three months ended March 31, 2022 were $9.4 million, or $0.99 per boe, higher compared to the corresponding 2021 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 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.

The gathering, transportation and processing costs for the three months ended March 31, 2022 were $5.6 million, or $0.62 per boe, higher than the three months ended March 31, 2021, 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 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.

The following table provides the components of Magnolia’s revenues for the periods indicated, as well as each period’s respective average prices and production volumes.

This table shows production on a boe basis in which natural gas is converted to an equivalent barrel of oil based on a ratio of six Mcf to one barrel.

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

Nine Months Ended

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

Oil (MBbls) 8,346 8,965

Natural gas (MMcf) 31,617 29,261

NGLs (MBbls) 4,097 3,213

Total (Mboe) 17,713 17,055

Average daily production:

Oil (Bbls/d) 30,573 32,718

Natural gas (Mcf/d) 115,812 106,790

NGLs (Bbls/d) 15,008 11,725

Total (boe/d) 64,883 62,241

Oil revenues $ 529,641 $ 311,153

Natural gas revenues 110,187 44,238

Natural gas liquids revenues 102,140 29,880

Total revenues $ 741,968 $ 385,271

Average Price:

Oil (per barrel) $ 63.46 $ 34.71

Natural gas (per Mcf) 3.49 1.51

NGLs (per barrel) 24.93 9.30

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.

Nine Months Ended

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

Operating Expenses:

Lease operating expenses $ 64,957 $ 61,275

Gathering, transportation and processing 27,839 20,579

Taxes other than income 38,657 22,874

Exploration expenses 2,440 563,589

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

Asset retirement obligations accretion 4,065 4,403

Depreciation, depletion and amortization 134,268 238,273

Amortization of intangible assets 9,346 10,879

General and administrative expenses 59,816 50,472

Total operating expenses $ 341,388 $ 2,353,602

Other Income (Expense):

Income from equity method investee $ — $ 2,059

Interest expense, net (23,519) (21,345)

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

Other expense, net 48 (510)

Total other expense, net $ (26,581) $ (22,004)

Average Operating Costs per boe:

Lease operating expenses $ 3.67 $ 3.59

Gathering, transportation and processing 1.57 1.21

Taxes other than income 2.18 1.34

Exploration expense 0.14 33.05

Impairment of oil and natural gas properties — 80.99

Asset retirement obligations accretion 0.23 0.26

Depreciation, depletion and amortization 7.58 13.97

Amortization of intangible assets 0.53 0.64

General and administrative expenses 3.38 2.96

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 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 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.

Taxes other than income for the three months ended March 31, 2022 were $10.1 million, or $1.31 per boe, higher compared to the three months ended March 31, 2021, primarily due to an increase in oil, natural gas, and NGL revenues.

Exploration expenses are geological and geophysical costs that include seismic surveying costs, costs of unsuccessful exploratory dry wells, costs of expired or abandoned leases, and delay rentals.

The exploration expenses for the three months ended March 31, 2022 were $3.5 million, or $0.49 per boe, higher than the three months ended March 31, 2021, due to increased seismic surveying costs.

Depreciation, depletion and amortization (“DD&A”) during the three months ended March 31, 2022 was $10.2 million, or $0.55 per boe, higher than the three months ended March 31, 2021 due to increased production and a higher depreciable cost basis.

For the three months ended March 31, 2022, 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 March 31, 2021, the Company recognized $2.1 million of amortization of intangible assets.

General and administrative expenses during the three months ended March 31, 2022 were $3.3 million, or $0.99 per boe, lower than the three months ended March 31, 2021, 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.

Interest expense, net, during the three months ended March 31, 2022 was $2.1 million higher than the three months ended March 31, 2021, primarily driven by the write-off of previously capitalized deferred financing costs in connection with the amendment to the RBL Facility during the first quarter of 2022.

Liquidity and Capital Resources

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The Company’s primary uses of cash have been for acquisitions of oil and natural gas properties and related assets, development of the Company’s oil and natural gas properties, share repurchases, and general working capital needs.

The Company may also utilize borrowings under other various financing sources available to it, including its RBL Facility and the issuance of equity or debt securities through public offerings or private placements, to fund Magnolia’s acquisitions and long-term liquidity needs.

The Company may also utilize borrowings under other various financing sources available to it, including its Amended and Restated RBL Facility and the issuance of equity or debt securities through public offerings or private placements, to fund Magnolia’s acquisitions and long-term liquidity needs.

Magnolia’s ability to complete future offerings of equity or debt securities and the timing of these offerings will depend upon various factors, including prevailing market conditions and the Company’s financial condition.

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 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.

As of March 31, 2022, the Company had $400.0 million of principal debt related to the 2026 Senior Notes outstanding and no outstanding borrowings related to the Amended and Restated RBL Facility.

As of March 31, 2022, the Company had $796.4 million of liquidity comprised of the $450.0 million of borrowing base capacity of the Amended and Restated RBL Facility, and $346.4 million of cash and cash equivalents.

Cash and Cash Equivalents

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

At March 31, 2022, Magnolia had $346.4 million of cash and cash equivalents.

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

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

Nine Months Ended

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

Three Months Ended

(In thousands) March 31, 2022 March 31, 2021

Sources of cash and cash equivalents

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(259,455) (132,520)

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

Decrease in cash and cash equivalents $ (20,586) $ (14,367)

Sources of Cash and Cash Equivalents

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Operating cash flows are the Company’s primary source of liquidity and are impacted, in the short- and long-term, by oil and natural gas prices.

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 $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.

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

Net cash provided by operating activities totaled $238.9 million and $118.2 million for the three months ended March 31, 2022 and 2021, respectively.

During the three months ended March 31, 2022, cash provided by operating activities was positively impacted by increased oil, natural gas, and NGL prices, partially offset by higher operating expenses and income tax payments.

Uses of Cash and Cash Equivalents

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.

The Company made individually insignificant bolt-on acquisitions during each of the three months ended March 31, 2022 and 2021.

Additions to Oil and Natural Gas Properties

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

The following table sets forth the Company’s capital expenditures for the three months ended March 31, 2022 and 2021:

Three Months Ended

(In thousands) March 31, 2022 March 31, 2021

Drilling and completion $ 83,357 $ 38,850

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Total capital expenditures $ 84,230 $ 40,166

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

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

During the first quarter of 2022, Magnolia was running a two-rig program.

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

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

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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 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%.

During the three months ended March 31, 2022 and 2021, the Company repurchased 1.5 million and 2.0 million shares for a total cost of approximately $33.3 million and $20.3 million, respectively.

During the three months ended March 31, 2022, the Company also repurchased 0.6 million shares of Class A Common Stock for $11.6 million from EnerVest Energy Institutional Fund XIV-C, L.P.

outside of the share repurchase program.

During the three months ended March 31, 2022 and 2021, Magnolia LLC repurchased and subsequently canceled 3.9 million and 5.0 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock for $84.7 million and $50.8 million of cash consideration, respectively.

As of March 31, 2022, Magnolia owned approximately 84.0% of the interest in Magnolia LLC and the noncontrolling interest was approximately 16.0%.

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.

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

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.

On June 30, 2021, 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 February 3, 2022, the Company’s board of directors declared a cash dividend of $0.20 per share of Class A Common Stock totaling $37.3 million, of which $37.2 million was paid as of March 31, 2022.

In addition, $8.6 million was distributed to the Magnolia LLC Unit Holders.

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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