What changed in this filing

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Item 1. Financial Statements

2022-11-02 compared with 2022-08-03 · 129 added, 105 removed, 391 unchanged (37% of the section changed)

3 unchanged sentences

(In thousands)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

ASSETS (Unaudited) (Audited)

42 unchanged sentences

(In thousands, except per share data)

Three Months Ended Six Months Ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Oil revenues $ 317,243 $ 195,642 $ 912,702 $ 531,300

35 unchanged sentences

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

For the Three Months Ended June 30, 2021 Shares Value Shares Value Shares Value

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

For the Three Months Ended September 30, 2021 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, net of forfeitures — — — — 2,180 — — — 2,180 730 2,910

3 unchanged sentences

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

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

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

Dividends declared ($ 0.08 per share)

— — — — ( 14,236 ) — — — ( 14,236 ) — ( 14,236 )

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

For the Three Months Ended September 30, 2022

Balance, June 30, 2022 208,729 $ 21 28,710 $ 3 $ 1,647,637 18,283 $ ( 257,837 ) $ ( 291,546 ) $ 1,098,278 $ 170,279 $ 1,268,557

For the Three Months Ended June 30, 2022

Balance, March 31, 2022 203,762 $ 20 35,594 $ 4 $ 1,649,111 16,218 $ ( 209,418 ) $ ( 542,129 ) $ 897,588 $ 174,780 $ 1,072,368

Stock based compensation expense, net of forfeitures — — — — 3,004 — — — 3,004 458 3,462

2 unchanged sentences

Class A Common Stock repurchases — — — — — 3,000 ( 62,367 ) — ( 62,367 ) — ( 62,367 )

Class B Common Stock purchase and cancellation — — ( 2,000 ) — — — — — — ( 54,020 ) ( 54,020 )

Conversion of Class B Common Stock to Class A Common Stock 4,884 1 ( 4,884 ) ( 1 ) — — — — — —

Dividends declared ($ 0.10 per share)

— — — — ( 19,112 ) — — — ( 19,112 ) — ( 19,112 )

Distributions to noncontrolling interest owners — — — — — — — — — ( 7,608 ) ( 7,608 )

Net income — — — — — — — 245,477 245,477 41,486 286,963

Balance, June 30, 2022 208,729 $ 21 28,710 $ 3 $ 1,647,637 18,283 $ ( 257,837 ) $ ( 291,546 ) $ 1,098,278 $ 170,279 $ 1,268,557

Balance, September 30, 2022

208,758 $ 21 28,710 $ 3 $ 1,637,279 21,283 $ ( 320,204 ) $ ( 46,069 ) $ 1,271,030 $ 198,676 $ 1,469,706

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

4 unchanged sentences

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

For the Six Months Ended June 30, 2021

For the Nine Months Ended September 30, 2021

Shares Value Shares Value Shares Value

7 unchanged sentences

Conversion of Class B Common Stock to Class A Common Stock 19,874 2 ( 19,874 ) ( 2 ) — — — — — — —

Dividends declared ($ 0.08 per share)

— — — — ( 14,236 ) — — — ( 14,236 ) — ( 14,236 )

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

Net income — — — — — — — 267,053 267,053 100,518 367,571

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

For the Six Months Ended June 30, 2022

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

For the Nine Months Ended September 30, 2022

Balance, December 31, 2021 193,437 $ 19 49,293 $ 5 $ 1,689,500 14,168 $ ( 164,599 ) $ ( 708,168 ) $ 816,757 $ 228,492 $ 1,045,249

5 unchanged sentences

Conversion of Class B Common Stock to Class A Common Stock 14,633 2 ( 14,633 ) ( 2 ) — — — — — — —

Distributions to noncontrolling interest owners — — — — — — — — — ( 16,243 ) ( 16,243 )

Dividends declared ($ 0.30 per share)

— — — — ( 56,395 ) — — — ( 56,395 ) — ( 56,395 )

Distributions to noncontrolling interest owners — — — — — — — — — ( 23,852 ) ( 23,852 )

Net income — — — — — — — 662,099 662,099 133,389 795,488

Balance, June 30, 2022 208,729 $ 21 28,710 $ 3 $ 1,647,637 18,283 $ ( 257,837 ) $ ( 291,546 ) $ 1,098,278 $ 170,279 $ 1,268,557

Balance, September 30, 2022

208,758 $ 21 28,710 $ 3 $ 1,637,279 21,283 $ ( 320,204 ) $ ( 46,069 ) $ 1,271,030 $ 198,676 $ 1,469,706

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

2 unchanged sentences

( In thousands)

Six Months Ended

June 30, 2022 June 30, 2021

Nine Months Ended

September 30, 2022 September 30, 2021

CASH FLOWS FROM OPERATING ACTIVITIES

63 unchanged sentences

Summary of Significant Accounting Policies

As of June 30, 2022, the Company’s significant accounting policies are consistent with those discussed in Note 1—Organization and Summary of Significant Accounting Policies of its consolidated financial statements contained in the Company’s 2021 Form 10-K.

As of September 30, 2022, the Company’s significant accounting policies are consistent with those discussed in Note 1—Organization and Summary of Significant Accounting Policies of its consolidated financial statements contained in the Company’s 2021 Form 10-K.

Revenue Recognition

2 unchanged sentences

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

Receivables from contracts with customers totaled $ 210.5 million as of June 30, 2022 and $ 125.1 million as of December 31, 2021.

Receivables from contracts with customers totaled $ 160.6 million as of September 30, 2022 and $ 125.1 million as of December 31, 2021.

For further detail regarding the Company’s revenue recognition policies, please refer to Note 1—Organization and Summary of Significant Accounting Policies of the consolidated financial statements contained in the Company’s 2021 Form 10-K.

7 unchanged sentences

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 six months ended June 30, 2022 and 2021:

Three Months Ended Six Months Ended

(In thousands) June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

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:

Three Months Ended Nine Months Ended

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

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

Unrealized loss on derivatives — ( 1,838 ) — ( 2,320 )

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

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

The Company had no outstanding derivative contracts in place as of June 30, 2022.

The Company had no outstanding derivative contracts in place as of September 30, 2022.

Fair Value Measurements

8 unchanged sentences

Recurring Fair Value Measurements

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, 2022 and December 31, 2021 is as follows:

June 30, 2022 December 31, 2021

The carrying value and fair value of the financial instrument that is not carried at fair value in the Company’s consolidated balance sheets at September 30, 2022 and December 31, 2021 are as follows:

September 30, 2022 December 31, 2021

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

Long-term debt $ 389,794 $ 380,508 $ 388,087 $ 411,500

The fair value of the 2026 Senior Notes at June 30, 2022 and December 31, 2021 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, 2022 and December 31, 2021 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.

5 unchanged sentences

For further detail, see Note 12—Stock Based Compensation in the Notes to the Consolidated Financial Statements.

There were no other nonrecurring fair value measurements as of June 30, 2022 or December 31, 2021.

There were no other nonrecurring fair value measurements as of September 30, 2022 or December 31, 2021.

Intangible Assets

8 unchanged sentences

The following table provides detail of the Company’s other current liabilities for the periods presented:

(In thousands) June 30, 2022 December 31, 2021

(In thousands) September 30, 2022 December 31, 2021

Accrued capital expenditures $ 44,088 $ 29,936

Accrued production taxes 17,140 10,084

Other 83,275 60,700

2 unchanged sentences

The Company’s long-term debt is comprised of the following:

(In thousands) June 30, 2022 December 31, 2021

(In thousands) September 30, 2022 December 31, 2021

Revolving credit facility $ — $ —

5 unchanged sentences

Credit Facility

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.

On February 16, 2022, Magnolia Operating, as borrower, amended and restated the RBL Facility (“Amended and Restated RBL Facility”) in its entirety, providing for maximum commitments in an aggregate principal amount of $ 1.0 billion with a letter of credit facility with a $ 50.0 million sublimit, with an initial borrowing base of $ 450.0 million.

On February 16, 2022, Magnolia Operating, as borrower,

amended and restated the RBL Facility (“Amended and Restated RBL Facility”) in its entirety, providing for maximum commitments in an aggregate principal amount of $ 1.0 billion with a letter of credit facility with a $ 50.0 million sublimit, with an initial borrowing base of $ 450.0 million.

The Amended and Restated RBL Facility, maturing in February 2026, 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.

3 unchanged sentences

The Amended and Restated RBL Facility contains certain affirmative and negative covenants customary for financings of this type, including compliance with a leverage ratio of less than 3.50 to 1.00 and a current ratio of greater than 1.00 to 1.00.

As of June 30, 2022, the Company was in compliance with all covenants under the Amended and Restated RBL Facility.

The Company incurred approximately $ 5.5 million of lender and transaction fees related to the modification of which $ 5.1 million were recorded as deferred financing costs and will be amortized prospectively over the remaining term of the Amended and Restated RBL Facility and $ 0.4 million of which were expensed and are reflected in “Interest expense, net” on the Company’s consolidated statements of operations for the six months ended June 30, 2022.

As of September 30, 2022, the Company was in compliance with all covenants under the Amended and Restated RBL Facility.

Deferred financing costs in connection with the Amended and Restated RBL Facility are amortized on a straight-line basis over a period of four years from February 2022 to February 2026 and included in “Interest expense, net” in the Company’s consolidated statements of operations.

The Company recognized interest expense related to the Amended and Restated RBL Facility and the RBL Facility, as applicable, of $ 1.0 million for each of the three months ended June 30, 2022 and 2021, and $ 3.7 million and $ 2.0 million for the six months ended June 30, 2022 and 2021, 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, 2022.

The Company did no t have any outstanding borrowings under the Amended and Restated RBL Facility as of June 30, 2022.

The Company recognized interest expense related to the Amended and Restated RBL Facility and the RBL Facility, as applicable, of $ 1.1 million and $ 1.0 million for the three months ended September 30, 2022 and 2021, respectively, and $ 4.8 million and $ 3.1 million for the nine months ended September 30, 2022 and 2021, respectively.

The unamortized portion of the deferred financing costs is included in “Deferred financing costs, net” on the Company’s consolidated balance sheet as of September 30, 2022.

The Company did no t have any outstanding borrowings under the Amended and Restated RBL Facility as of September 30, 2022.

2026 Senior Notes

9 unchanged sentences

Deferred financing costs related to the issuance of, and the amendment to the Indenture governing, the 2026 Senior Notes 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, 2022.

The Company recognized interest expense related to the 2026 Senior Notes of $ 6.6 million and $ 7.7 million for the three months ended June 30, 2022 and 2021, respectively, and $ 13.1 million and $ 14.0 million for the six months ended June 30, 2022 and 2021, respectively.

The Company recognized interest expense related to the 2026 Senior Notes of $ 6.6 million and $ 6.5 million for the three months ended September 30, 2022 and 2021, respectively, and $ 19.7 million and $ 20.5 million for the nine months ended September 30, 2022 and 2021, respectively.

At any time, 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.

10 unchanged sentences

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

At June 30, 2022, 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, 2022 or June 30, 2021.

At September 30, 2022, 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, 2022 or September 30, 2021.

Environmental Matters

6 unchanged sentences

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

Additionally, 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 further increases to our operating and capital costs.

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.

3 unchanged sentences

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

Three Months Ended Six Months Ended

(In thousands) June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Three Months Ended Nine Months Ended

(In thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Federal $ 18,009 $ 2,604 $ 60,695 $ 4,248

7 unchanged sentences

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

The Company’s effective tax rate for the three months ended June 30, 2022 and 2021 was 8.5 % and 2.0 %, respectively.

The Company’s effective tax rate for the six months ended June 30, 2022 and 2021 was 8.3 % and 1.3 %, 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, 2022 and June 30, 2021.

The Company’s effective tax rate for the three months ended September 30, 2022 and 2021 was 6.3 % and 2.2 %, respectively.

The Company’s effective tax rate for the nine months ended September 30, 2022 and 2021 was 7.6 % and 1.7 %, 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, 2022, 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 six months ended June 30, 2022, no amounts were incurred for income tax uncertainties or interest and penalties.

As of September 30, 2022, the Company does not anticipate recognition of any significant liabilities for uncertain tax positions during the next 12 months.

For the nine months ended September 30, 2022, no amounts were incurred for 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, 2022, the Magnolia LLC Unit Holders redeemed 14.6 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.

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

During the nine months ended September 30, 2022, the Magnolia LLC Unit Holders redeemed 14.6 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.

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

1 unchanged sentence

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

As of June 30, 2022, the Company’s net deferred tax asset was $ 198.4 million.

As of September 30, 2022, the Company’s net deferred tax asset was $ 164.9 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, 2022, the Company assessed the realizability of the deferred tax assets and recorded a full valuation allowance of $ 198.4 million.

As commodity prices have improved during 2021 and 2022, Magnolia has begun to sustain a level of increased profitability such that, net of its net operating loss, Magnolia is beginning to project modest taxable income.

Should this continue, increased weight will be given to positive operating results, along with projections of future taxable income, in determining whether future taxable income will be sufficient to provide for realization of the Company’s deferred tax assets, and if so, this new evidence may result in a change in estimate of the Company’s valuation allowance in the next 12 months.

As of September 30, 2022, the Company assessed the realizability of the deferred tax assets and recorded a full valuation allowance of $ 164.9 million.

As commodity prices have improved during 2021 and 2022, Magnolia has begun to sustain a level of increased profitability such that, net of its net operating loss, Magnolia is recognizing taxable income.

As this continues, increased weight will be given to positive operating results, along with projections of future taxable income, in determining whether future taxable income will be sufficient to provide for realization of the Company’s deferred tax assets, and if so, this new evidence may result in a change in estimate of the Company’s valuation allowance in the next 12 months.

On August 16, 2022, the U.S.

enacted legislation referred to as the Inflation Reduction Act (“IRA”), which significantly changes U.S.

corporate income tax laws and is effective for tax years beginning after December 31, 2022.

These changes include, among others, a new 15% corporate alternative minimum tax on adjusted financial statement income of corporations with profits over $1 billion, a 1% excise tax on stock buybacks, and various tax incentives for energy and climate initiatives.

The Company is in the process of evaluating the provisions of the IRA, but it does not currently believe the IRA will have a material impact on its reported results, cash flows or financial position when it becomes effective.

Stockholders’ Equity

Class A Common Stock

At June 30, 2022, there were 208.7 million shares of Class A Common Stock issued and 190.4 million shares of Class A Common Stock outstanding.

At September 30, 2022, there were 208.8 million shares of Class A Common Stock issued and 187.5 million shares of Class A Common Stock outstanding.

The holders of Class A Common Stock and Class B Common Stock vote together as a single class on all matters and are entitled one vote for each share held.

There is no cumulative voting with respect to the election of directors, which

results in the holders of more than 50% of the Company’s outstanding common shares being able to elect all of the directors, subject to voting obligations under the Stockholder Agreement.

There is no cumulative voting with respect to the election of directors, which results in the holders of more than 50% of the Company’s outstanding common shares being able to elect all of the directors, subject to voting obligations under the Stockholder Agreement.

In the event of a liquidation, dissolution, or winding up of the Company, the holders of the Class A Common Stock are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of stock, if any, having preference over the common stock.

1 unchanged sentence

Class B Common Stock

At June 30, 2022, there were 28.7 million shares of Class B Common Stock issued and outstanding.

At September 30, 2022, there were 28.7 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.

6 unchanged sentences

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

As of June 30, 2022, the Company had repurchased 17.7 million shares under the program at a cost of $ 246.3 million.

During the six months ended June 30, 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.

As of September 30, 2022, the Company had repurchased 20.7 million shares under the program at a cost of $ 308.6 million.

During the nine months ended September 30, 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 six months ended June 30, 2022 Magnolia LLC repurchased and subsequently canceled 5.9 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock for $ 138.8 million of cash consideration (the “Class B Common Stock Repurchases”).

During the nine months ended September 30, 2022 Magnolia LLC repurchased and subsequently canceled 5.9 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock for $ 138.8 million of cash consideration (the “Class B Common Stock Repurchases”).

During the same period, the Magnolia LLC Unit Holders redeemed 14.6 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.

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 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.

2 unchanged sentences

Dividends and Distributions

Distributions

On February 3, 2022, Magnolia LLC declared a cash distribution of $ 0.20 per Magnolia LLC Unit totaling $ 45.9 million, of which $ 37.3 million was distributed to the Company and $ 8.6 million was distributed to the Magnolia LLC Unit Holders.

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 distributions to the Magnolia LLC Unit Holders were recorded as a reduction of noncontrolling interest on the Company’s consolidated balance sheets as of June 30, 2022 and December 31, 2021.

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.

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.

In 2021, the Company’s board of directors announced the Company’s first dividend, payable on issued and outstanding shares of Class A Common Stock, and a corresponding distribution from Magnolia LLC to Magnolia LLC Unit Holders.

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

The $ 37.3 million and $ 14.2 million dividends declared during the first quarter of 2022 and the third quarter of 2021, respectively, were recorded as a reduction of additional paid-in capital on the Company’s consolidated balance sheets as of June 30, 2022 and December 31, 2021.

The dividends declared in 2022 and 2021 were recorded as a reduction of additional paid-in capital on the Company’s consolidated balance sheets as of September 30, 2022 and December 31, 2021.

The distributions to the Magnolia LLC Unit Holders were recorded as a reduction of noncontrolling interest on the Company’s consolidated balance sheets as of September 30, 2022 and December 31, 2021.

The following table sets forth information with respect to cash dividends and distributions declared by the Company’s board of directors during the nine months ended September 30, 2022 and the year ended December 31, 2021, on its own behalf and in its capacity as the managing member of Magnolia LLC, on issued and outstanding shares of Class A Common Stock and Magnolia LLC Units:

Distribution Amount per share (1)

Distributions by Magnolia LLC (2)

Dividends Declared

by the Company (2)

Distributions to Magnolia LLC Unit Holders

(In thousands, except per share amounts)

August 12, 2022

September 1, 2022

$ 0.10 $ 21,983 $ 19,112 $ 2,871

February 14, 2022

March 1, 2022

$ 0.20 $ 45,851 $ 37,283 $ 8,568

August 12, 2021

September 1, 2021

$ 0.08 $ 19,078 $ 14,236 $ 4,842

(1) Per share of Class A Common Stock and per Magnolia LLC Unit.

(2) Reflects total cash dividend and distribution payments made, or to be made, to holders of Class A Common Stock and Magnolia LLC Unit Holders (other than the Company) as of the applicable record date.

Noncontrolling Interest

1 unchanged sentence

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).

As of June 30, 2022, Magnolia owned approximately 86.9 % of the interest in Magnolia LLC and the noncontrolling interest was approximately 13.1 %.

As of September 30, 2022, Magnolia owned approximately 86.7 % of the interest in Magnolia LLC and the noncontrolling interest was approximately 13.3 %.

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.

1 unchanged sentence

On October 8, 2018, the Company’s board of directors adopted the “Magnolia Oil & Gas Corporation Long Term Incentive Plan” (as amended, 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, 2022.

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.

A total of 16.8 million shares of Class A Common Stock have been authorized for issuance under the Plan as of September 30, 2022.

The Company grants stock based compensation awards in the form of restricted stock units (“RSU”), performance restricted stock units (“PRSU”), and performance stock units (“PSU”) 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 for each of the three months ended June 30, 2022 and 2021, and $ 6.4 million and $ 6.2 million for the six months ended June 30, 2022 and 2021, respectively.

Stock based compensation expense is recognized net of forfeitures within “General and administrative expenses” and “Lease operating expenses” on the consolidated statements of operations and was $ 3.5 million and $ 2.9 million for the three months ended September 30, 2022 and 2021, respectively, and $ 9.9 million and $ 9.1 million for the nine months ended September 30, 2022 and 2021, 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, 2022.

Stock Units Performance

The following table presents a summary of Magnolia’s unvested RSU, PRSU, and PSU activity for the three months ended September 30, 2022.

Stock Units Performance Restricted

Stock Units Performance

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, 2022 1,106,602 $ 11.33 278,485 $ 6.14 1,261,734 $ 13.29

Unvested at June 30, 2022 1,053,514 $ 11.83 1,261,957 $ 13.29 278,485 $ 6.14

Granted 14,077 22.63 7,341 23.41 — —

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Forfeited ( 12,528 ) 12.56 ( 9,000 ) 13.42 — —

Unvested at June 30, 2022 1,053,514 $ 11.83 278,485 $ 6.14 1,261,957 $ 13.29

The following table presents a summary of Magnolia’s unvested RSU, PSU, and PRSU activity for the six months ended June 30, 2022.

Stock Units Performance

Unvested at September 30, 2022

1,020,659 $ 11.99 1,257,827 $ 13.35 278,485 $ 6.14

The following table presents a summary of Magnolia’s unvested RSU, PRSU, and PSU activity for the nine months ended September 30, 2022.

Stock Units Performance Restricted

Stock Units Performance

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

Unvested at December 31, 2021

1,187,509 $ 8.94 968,654 $ 9.36 460,414 $ 9.20

Granted 301,296 21.00 514,306 19.21 — —

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Forfeited ( 26,634 ) 12.62 ( 9,936 ) 13.23 — —

Unvested at June 30, 2022 1,053,514 $ 11.83 278,485 $ 6.14 1,261,957 $ 13.29

Unvested at September 30, 2022

1,020,659 $ 11.99 1,257,827 $ 13.35 278,485 $ 6.14

(1) Upon completion of the performance period for the PSUs granted in 2019, a performance multiple of 150 % was applied to each of the grants resulting in additional grants of PSUs in 2022.

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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.

The aggregate fair value of RSUs that vested during the six months ended June 30, 2022 and 2021 was $ 10.2 million and $ 5.8 million, respectively.

Unrecognized compensation expense related to unvested RSUs as of June 30, 2022 was $ 9.6 million, which the Company expects to recognize over a weighted average period of 2.6 years.

Performance Stock Units and Performance Restricted Stock Units

The aggregate fair value of RSUs that vested during the nine months ended September 30, 2022 and 2021 was $ 11.0 million and $ 7.0 million, respectively.

Unrecognized compensation expense related to unvested RSUs as of September 30, 2022 was $ 8.4 million, which the Company expects to recognize over a weighted average period of 2.5 years.

Performance Restricted Stock Units and Performance Stock Units

The Company grants PRSUs to certain employees.

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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.

The aggregate fair value of PRSU awards that vested during the six months ended June 30, 2022 was $ 4.8 million.

Unrecognized compensation expense related to unvested PRSUs as of June 30, 2022 was $ 12.9 million, which the Company expects to recognize over a weighted average period of 2.4 years.

The aggregate fair value of PRSU awards that vested during the nine months ended September 30, 2022 was $ 4.8 million.

Unrecognized compensation expense related to unvested PRSUs as of September 30, 2022 was $ 11.0 million, which the Company expects to recognize over a weighted average period of 2.1 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.

The aggregate fair value of PSU awards that vested during the six months ended June 30, 2022 and 2021 was $ 5.5 million and $ 0.2 million, respectively.

Unrecognized compensation expense related to unvested PSUs as of June 30, 2022 was $ 0.3 million, which the Company expects to recognize over a weighted average period of 0.6 years.

The grant date fair values of the PRSUs granted during the six months ended June 30, 2022 and 2021, were $ 9.7 million and $ 9.5 million, respectively.

The aggregate fair value of PSU awards that vested during the nine months ended September 30, 2022 and 2021 was $ 5.5 million and $ 4.0 million, respectively.

Unrecognized compensation expense related to unvested PSUs as of September 30, 2022 was $ 0.2 million, which the Company expects to recognize over a weighted average period of 0.3 years.

The grant date fair values of the PRSUs granted during the nine months ended September 30, 2022 and 2021, were $ 9.9 million and $ 9.5 million, respectively.

Since the Performance Condition for the PRSUs granted in 2022 and 2021 were met on March 28, 2022 and March 17, 2021, respectively, the fair value of the PRSUs granted after the Performance Condition were met were based upon the grant date market value of the award.

The fair values of the awards granted prior to the date the Performance Condition was met were determined using a Monte Carlo simulation.

The following table summarizes the Monte Carlo simulation assumptions used to calculate the grant date fair value of the PRSUs in 2022 and 2021.

Six Months Ended

PRSU Grant Date Fair Value Assumptions June 30, 2022 June 30, 2021

The fair values of the awards granted prior to the date the Performance Condition was met were determined using a Monte Carlo simulation, which assumptions are summarized in the table below.

Nine Months Ended

PRSU Grant Date Fair Value Assumptions September 30, 2022 September 30, 2021

Expected term (in years)

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

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

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

Three Months Ended Six Months Ended

(In thousands, except per share data) June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Diluted net income per share attributable to Class A Common Stock is calculated under both the two-class method and the treasury stock method and the more dilutive of the two calculations is presented.

The components of basic and diluted net income per share attributable to Class A Common Stock are as follows:

Three Months Ended Nine Months Ended

(In thousands, except per share data) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Net income attributable to Class A Common Stock $ 245,477 $ 119,364 $ 662,099 $ 267,053

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$ 1.29 $ 0.67 $ 3.51 $ 1.53

For the three months ended June 30, 2022 and 2021, the Company excluded 33.8 million and 66.1 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 six months ended June 30, 2022 and 2021, the Company excluded 39.0 million and 73.1 million, respectively, 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 months ended September 30, 2022 and 2021, the Company excluded 28.7 million and 60.4 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 nine months ended September 30, 2022 and 2021, the Company excluded 35.5 million and 68.8 million, respectively, 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.

Related Party Transactions

As of June 30, 2022, no entity held more than 10% of the Company’s common stock or qualified as a principal owner of the Company, as defined in ASC 850, “Related Party Disclosures.”

As of September 30, 2022, no entity held more than 10% of the Company’s common stock or qualified as a principal owner of the Company, as defined in ASC 850, “Related Party Disclosures.”

Subsequent Events

On August 2, 2022, the Company’s board of directors declared a quarterly cash dividend of $ 0.10 per share of Class A Common Stock, and Magnolia LLC declared a cash distribution of $ 0.10 per Magnolia LLC Unit to each holder of Magnolia LLC Units, each payable on September 1, 2022 to shareholders or members of record, as applicable, as of August 12, 2022.

On October 27, 2022, the Company’s board of directors declared a quarterly cash dividend of $ 0.10 per share of Class A Common Stock, and a cash distribution of $ 0.10 per Magnolia LLC Unit, payable on December 1, 2022 to shareholders or members of record, as applicable, as of November 7, 2022.

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