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Item 1. Financial Statements

2023-05-04 compared with 2022-11-02 · 105 added, 191 removed, 329 unchanged (47% of the section changed)

3 unchanged sentences

(In thousands)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

ASSETS (Unaudited) (Audited)

13 unchanged sentences

Deferred financing costs, net 5,193 5,636

Deferred tax assets 147,670 162,792

Other long-term assets 20,593 20,381

19 unchanged sentences

( 380,783 ) ( 329,512 )

Accumulated deficit ( 46,069 ) ( 708,168 )

Retained earnings 259,636 185,669

Noncontrolling interest 167,714 164,136

1 unchanged sentence

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,576,054 $ 2,572,585

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

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

Magnolia Oil & Gas Corporation

1 unchanged sentence

(In thousands, except per share data)

Three Months Ended Nine Months Ended

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

Three Months Ended

March 31, 2023 March 31, 2022

Oil revenues $ 239,122 $ 262,667

9 unchanged sentences

Depreciation, depletion and amortization 70,701 53,106

Amortization of intangible assets — — — 9,346

Impairment of oil and natural gas properties 15,735 —

General and administrative expenses 19,766 17,070

2 unchanged sentences

OTHER INCOME (EXPENSE)

Interest expense, net ( 5,263 ) ( 7,474 ) ( 21,637 ) ( 23,519 )

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

Interest income (expense), net 487 ( 9,357 )

Other income (expense), net ( 1,138 ) 207

16 unchanged sentences

Common Stock Class B

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

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

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

Common stock issued related to stock based compensation and other, net 219 — — — ( 1,345 ) — — — ( 1,345 ) ( 449 ) ( 1,794 )

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

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

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

Dividends declared ($ 0.08 per share)

— — — — ( 14,236 ) — — — ( 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

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

Changes in ownership interest adjustment — — — — 5,914 — — — 5,914 ( 5,914 ) —

Common stock issued related to stock based compensation and other, net 29 — — — ( 164 ) — — — ( 164 ) ( 25 ) ( 189 )

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

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, 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.

Magnolia Oil & Gas Corporation

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(In thousands)

Common Stock Class B

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

For the Nine Months Ended September 30, 2021

Shares Value Shares Value Shares Value

Common Stock Additional Paid In Capital Treasury Stock Retained Earnings/ (Accumulated Deficit) Total Stockholders’ Equity Noncontrolling Interest Total

For the Three Months Ended March 31, 2022 Shares Value Shares Value Shares Value

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

4 unchanged sentences

Class B Common Stock purchase and cancellation — — ( 3,950 ) — — — — — — ( 84,733 ) ( 84,733 )

Non-compete settlement 375 — — — ( 29,758 ) — — — ( 29,758 ) ( 12,316 ) ( 42,074 )

Conversion of Class B Common Stock to Class A Common Stock 9,749 1 ( 9,749 ) ( 1 ) — — — — — — —

3 unchanged sentences

Net income — — — — — — — 166,039 166,039 42,581 208,620

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, 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

For the Three Months Ended March 31, 2023

Balance, December 31, 2022 213,727 $ 21 21,827 $ 2 $ 1,719,875 21,684 $ ( 329,512 ) $ 185,669 $ 1,576,055 $ 164,136 $ 1,740,191

3 unchanged sentences

Class A Common Stock repurchases — — — — — 2,400 ( 51,271 ) — ( 51,271 ) — ( 51,271 )

Class B Common Stock purchase and cancellation — — ( 5,950 ) — — — — — — ( 138,753 ) ( 138,753 )

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

Dividends declared ($ 0.115 per share)

1 unchanged sentence

Distributions to noncontrolling interest owners — — — — — — — — — ( 2,510 ) ( 2,510 )

Adjustment to deferred taxes — — — — ( 216 ) — — — ( 216 ) — ( 216 )

Tax impact of equity transactions — — — — ( 371 ) — — — ( 371 ) — ( 371 )

Net income — — — — — — — 96,335 96,335 10,342 106,677

Balance, September 30, 2022

Balance, March 31, 2023

214,355 $ 21 21,827 $ 2 $ 1,720,487 24,084 $ ( 380,783 ) $ 259,636 $ 1,599,363 $ 167,714 $ 1,767,077

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

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

Magnolia Oil & Gas Corporation

1 unchanged sentence

( In thousands)

Nine Months Ended

September 30, 2022 September 30, 2021

Three Months Ended

March 31, 2023 March 31, 2022

CASH FLOWS FROM OPERATING ACTIVITIES

2 unchanged sentences

Depreciation, depletion and amortization 70,701 53,106

Amortization of intangible assets — 9,346

Exploration expenses, non-cash 5 —

Impairment of oil and natural gas properties 15,735 —

Asset retirement obligations accretion 841 789

Amortization of deferred financing costs 1,042 2,812

Unrealized loss on derivatives, net — 277

Deferred income tax expense 15,403 —

Stock based compensation 3,772 2,885

Other — ( 85 )

Changes in operating assets and liabilities:

14 unchanged sentences

Class B Common Stock purchases and cancellations — ( 84,733 )

Non-compete settlement — ( 42,074 )

Dividends paid ( 22,578 ) ( 37,174 )

36 unchanged sentences

Summary of Significant Accounting Policies

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.

As of March 31, 2023, 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 2022 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 $ 160.6 million as of September 30, 2022 and $ 125.1 million as of December 31, 2021.

Receivables from contracts with customers totaled $ 123.2 million as of March 31, 2023 and $ 138.6 million as of December 31, 2022.

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 2022 Form 10-K.

Derivative Instruments

The Company settled all of its natural gas costless collar derivative contracts by September 30, 2021.

From September 30, 2020 to September 30, 2021, Magnolia utilized natural gas costless collars to reduce its exposure to price volatility for a portion of its natural gas production volumes.

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

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

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

The Company elected not to designate any of its derivative instruments as hedging instruments.

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

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

Three Months Ended Nine Months Ended

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

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

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 September 30, 2022.

During the three months ended December 31, 2022, the Company completed various leasehold, mineral rights, and property acquisitions of certain oil and natural gas assets, which had downward purchase price adjustments during the three months ended March 31, 2023.

The transactions were accounted for as asset acquisitions.

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 Company’s consolidated balance sheets at September 30, 2022 and December 31, 2021 are as follows:

September 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 March 31, 2023 and December 31, 2022 are as follows:

March 31, 2023 December 31, 2022

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

Long-term debt $ 390,982 $ 386,376 $ 390,383 $ 382,704

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 fair value of the 2026 Senior Notes at March 31, 2023 and December 31, 2022 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.

Non-financial assets and

liabilities initially measured at fair value include assets acquired and liabilities assumed in business combinations and asset retirement obligations.

Non-financial assets and liabilities initially measured at fair value include assets acquired and liabilities assumed in business combinations and asset retirement obligations.

Nonrecurring Fair Value Measurements

2 unchanged sentences

For further detail, see Note 11—Stock Based Compensation in the Notes to the consolidated financial statements.

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

Intangible Assets

Non-Compete Agreement

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

In January 2021, the Company amended the Non-Compete such that, rather than delivering an aggregate of 4.0 million shares of Class A Common Stock upon the two and one-half year and the four year anniversaries of the Closing Date, the Company would deliver (i) the cash value of approximately 2.0 million shares of Class A Common Stock and approximately 0.4 million shares of Class A Common Stock on the two and one-half year anniversary of the Closing Date and (ii) an aggregate of 1.6 million shares of Class A Common Stock on the four year anniversary of the Closing Date, in each case subject to the terms and conditions of the Non-Compete.

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

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

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

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

There were no other material nonrecurring fair value measurements as of March 31, 2023 or December 31, 2022.

Other Current Liabilities

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

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

(In thousands) March 31, 2023 December 31, 2022

Accrued capital expenditures $ 52,946 $ 67,923

3 unchanged sentences

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

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

(In thousands) March 31, 2023 December 31, 2022

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.

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.

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

Additionally, Magnolia Operating is required to pay a commitment fee quarterly in arrears in respect of unused commitments under the Amended and Restated RBL Facility.

The applicable margin and the commitment fee rate are calculated based upon the utilization levels of the Amended and Restated RBL Facility as a percentage of unused lender commitments then in effect.

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 September 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 nine months ended September 30, 2022.

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 $ 1.1 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.

The original 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 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 a borrowing base of $ 450.0 million.

The 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.

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

Additionally, Magnolia Operating is required to pay a commitment fee quarterly in arrears in respect of unused commitments under the RBL Facility.

The applicable margin and the commitment fee rate are calculated based upon the utilization levels of the RBL Facility as a percentage of unused lender commitments then in effect.

The 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 March 31, 2023, the Company was in compliance with all covenants under the 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 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 three months ended March 31, 2022.

Deferred financing costs in connection with the 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 RBL Facility of $ 1.0 million and $ 2.8 million for the three months ended March 31, 2023 and 2022, respectively.

The unamortized portion of the deferred financing costs is included in “Deferred financing costs, net” on the Company’s consolidated balance sheets as of March 31, 2023 and December 31, 2022.

The Company did no t have any outstanding borrowings under the RBL Facility as of March 31, 2023.

2026 Senior Notes

1 unchanged sentence

The 2026 Senior Notes were issued under the Indenture, dated as of July 31, 2018 (the “Indenture”), by and among the Issuers and Deutsche Bank Trust Company Americas, as trustee.

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

The 2026 Senior Notes are guaranteed on a senior unsecured basis by the Company, Magnolia Operating, and Magnolia Intermediate and may be guaranteed by certain future subsidiaries of the Company.

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

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

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

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

The Company incurred approximately $ 1.1 million of transaction fees in the second quarter of 2021 related to the modification which were expensed.

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

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 September 30, 2022.

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.

The Company recognized interest expense related to the 2026 Senior Notes of $ 6.6 million for each of the three months ended March 31, 2023 and 2022.

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.

6 unchanged sentences

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

The Co-Defendants retained all such liability in connection with the Business Combination.

The Co-Defendants retain all such liability.

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

1 unchanged sentence

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

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.

At March 31, 2023, the Company does not believe the outcome of any such disputes or legal actions will have a material effect on its consolidated statements of operations, balance sheet, or cash flows.

No amounts were accrued with respect to outstanding litigation at March 31, 2023 or March 31, 2022.

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.

Additionally, the economy is experiencing 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.

While oil and natural gas prices have increased since 2020, the extent of any further impact of the pandemic, including the emergence and spread of variant strains of COVID-19, on the Company’s industry and business cannot be reasonably predicted at this time.

Further, Russia’s invasion of Ukraine in the first quarter of 2022, and global sanctions placed on Russia in response, have had and may continue to have a global impact on supply and demand for oil and natural gas.

Russia’s invasion of Ukraine in the first quarter of 2022, and global sanctions placed on Russia in response, have had and may continue to have a global impact on supply and demand for oil and natural gas.

Magnolia continues to monitor any impacts from the Russia-Ukraine war on the global markets for its commodities.

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

Three Months Ended Nine Months Ended

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

Three Months Ended

(In thousands) March 31, 2023 March 31, 2022

Federal $ 3,650 $ 16,784

State 552 1,316

19,358 3,631 65,333 6,428

Total current 4,202 18,100

Federal 14,820 —

State — — — —

Total deferred 15,403 —

Income tax expense $ 19,605 $ 18,100

2 unchanged sentences

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

The Company’s effective tax rate for the three months ended 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.

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 September 30, 2022 and September 30, 2021.

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 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.

The Company’s effective tax rate for the three months ended March 31, 2023 and 2022 was 15.5 % and 8.0 %, respectively.

During the year ended December 31, 2022, the Company released the valuation allowance against net deferred tax assets.

For the three months ended March 31, 2023, the primary differences between the annual effective tax rate and the statutory rate of 21.0% are income attributable to noncontrolling interest and state taxes.

For the three months ended March 31, 2022, the difference between the effective tax rate and the statutory rate was also driven by valuation allowances.

As of March 31, 2023, the Company does not anticipate recognition of any significant liabilities for uncertain tax positions during the next 12 months.

For the three months ended March 31, 2023, no significant 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.

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.

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

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

As of September 30, 2022, the Company’s net deferred tax asset was $ 164.9 million.

As of March 31, 2023, the Company’s total deferred tax assets were $ 147.7 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 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.

As of March 31, 2023, Magnolia has no valuation allowance as the Company concluded that it is more likely than not that it will be able to realize all of its deferred tax assets.

On August 16, 2022, the U.S.

2 unchanged sentences

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.

The Company evaluated the provisions of the IRA, and determined that none of the provisions have a material impact on the Company’s reported results, cash flows or financial position for the current year.

The Company will continue to evaluate the impacts of the IRA in future tax years.

Stockholders’ Equity

Class A Common Stock

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.

At March 31, 2023, there were 214.4 million shares of Class A Common Stock issued and 190.3 million shares of Class A Common Stock outstanding.

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

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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.

The holders of the Class A Common Stock have no preemptive or other subscription rights, and there are no sinking fund provisions applicable to such shares.

holders of the Class A Common Stock have no preemptive or other subscription rights, and there are no sinking fund provisions applicable to such shares.

Class B Common Stock

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

At March 31, 2023, there were 21.8 million shares of Class B Common Stock issued and outstanding.

Holders of Class B Common Stock vote together as a single class with holders of Class A Common Stock on all matters properly submitted to a vote of the stockholders.

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

As of 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.

As of March 31, 2023, the Company had repurchased 23.5 million shares under the program at a cost of $ 369.2 million and had 6.5 million shares of Class A Common Stock remaining under its current repurchase authorization .

During the three months ended March 31, 2022, the Company 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 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 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 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”).

During the same period, the Magnolia LLC Unit Holders redeemed 9.7 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.

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Dividends and Distributions

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.

The Company’s board of directors periodically declares dividends 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 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:

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 March 31, 2023 and December 31, 2022.

The following table sets forth information with respect to cash dividends and distributions declared by the Company’s board of directors during the three months ended March 31, 2023 and the year ended December 31, 2022, 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)

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(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

February 10, 2023 March 1, 2023 $ 0.115 $ 24,878 $ 22,368 $ 2,510

November 7, 2022 December 1, 2022 $ 0.100 $ 21,867 $ 18,996 $ 2,871

August 12, 2022 September 1, 2022 $ 0.100 $ 21,983 $ 19,112 $ 2,871

February 14, 2022 March 1, 2022 $ 0.200 $ 45,851 $ 37,283 $ 8,568

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

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Noncontrolling Interest

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

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

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 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.

As of March 31, 2023, Magnolia owned approximately 89.7 % of the interest in Magnolia LLC and the noncontrolling interest was approximately 10.3 %.

Highlander Oil & Gas Holdings LLC (“Highlander”) is 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.

Stock Based Compensation

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 September 30, 2022.

A total of 16.8 million shares of Class A Common Stock have been authorized for issuance under the Plan as of March 31, 2023.

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 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.

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 $ 3.8 million and $ 2.9 million for the three months ended March 31, 2023 and 2022, 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, 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 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 — —

Vested ( 34,404 ) 11.11 ( 2,471 ) 12.20 — —

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

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.

The following table presents a summary of Magnolia’s unvested RSU, PRSU, and PSU activity for the three months ended March 31, 2023.

Stock Units Performance Restricted

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Unvested at December 31, 2022 911,286 $ 12.89 1,257,583 $ 13.36 278,486 $ 6.14

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

Granted 615,678 23.06 5,752 22.96 232,700 24.69

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Forfeited ( 16,036 ) 16.84 ( 2,143 ) 17.59 — —

Unvested at September 30, 2022

Unvested at March 31, 2023

1,186,712 $ 18.79 946,229 $ 13.65 232,700 $ 24.69

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The Company grants service-based RSU awards to employees, which generally vest ratably over a three-year or four-year service period, and to non-employee directors, which vest in full after one year .

Non-employee directors may elect to defer the RSU settlement date.

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

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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 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.

The aggregate fair value of RSUs that vested during the three months ended March 31, 2023 and 2022 were $ 7.2 million and $ 7.9 million, respectively.

Unrecognized compensation expense related to unvested RSUs as of March 31, 2023 was $ 19.4 million, which the Company expects to recognize over a weighted average period of 2.8 years.

Performance Restricted Stock Units and Performance Stock Units

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Compensation expense for the PRSU awards is based upon grant date fair market value of the award, calculated using a Monte Carlo simulation, as presented below, and such costs are recorded on a straight-line basis over the requisite service period for each separately vesting portion of the award, as if the award was, in-substance, multiple awards, as applicable.

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 aggregate fair value of PRSU awards that vested during the three months ended March 31, 2023 and 2022 were $ 7.0 million and $ 4.8 million.

Unrecognized compensation expense related to unvested PRSUs as of March 31, 2023 was $ 7.4 million, which the Company expects to recognize over a weighted average period of 1.7 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 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, which assumptions are summarized in the table below.

Nine Months Ended

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

The aggregate fair value of PSU awards that vested during the three months ended March 31, 2023 and 2022 were $ 6.7 million and $ 5.5 million, respectively.

Unrecognized compensation expense related to unvested PSUs as of March 31, 2023 was $ 5.5 million, which the Company expects to recognize over a weighted average period of 2.8 years.

The Performance Condition for the PRSUs granted in 2022 were met on March 28, 2022, therefore 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 PSUs in 2023 and PRSUs in 2022.

Three Months Ended

PSU and PRSU Grant Date Fair Value Assumptions March 31, 2023 March 31, 2022

Expected term (in years)

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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

Three Months Ended

(In thousands, except per share data) March 31, 2023 March 31, 2022

Net income attributable to Class A Common Stock $ 96,335 $ 166,039

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$ 0.50 $ 0.90

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.

For the three months ended March 31, 2023 and 2022, the Company excluded 21.8 million and 44.3 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.

Related Party Transactions

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.”

As of March 31, 2023, 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 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.

On May 1, 2023, the Company’s board of directors declared a quarterly cash dividend of $ 0.115 per share of Class A Common Stock, and a cash distribution of $ 0.115 per Magnolia LLC Unit, payable on June 1, 2023 to shareholders or members of record, as applicable, as of May 11, 2023.

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