What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-02 · 75 added, 152 removed, 129 unchanged (64% of the section changed)

25 unchanged sentences

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

Although it is not possible to identify all factors, these risks and uncertainties include the risk factors and the timing of any of those risk factors identified in the reports that we have filed and may file with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the period ended December 31, 2022 (the “2022 Form 10-K”).

Although it is not possible to identify all factors, these risks and uncertainties include the risk factors and the timing of any of those risk factors identified in the reports that the Company has filed and may file with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the period ended December 31, 2023 (the “2023 Form 10-K”).

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

Magnolia Oil & Gas Corporation (the “Company” or “Magnolia”) is an independent oil and natural gas company engaged in the acquisition, development, exploration, and production of oil, natural gas, and NGL reserves that operates in one reportable segment located in the United States.

The Company’s oil and natural gas properties are located primarily in Karnes County and the Giddings area in South Texas, where the Company primarily targets the Eagle Ford Shale and the Austin Chalk formations.

The Company’s oil and natural gas properties are located primarily in the Karnes and Giddings areas in South Texas, where the Company targets the Eagle Ford Shale and the Austin Chalk formations.

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

The Company’s allocation of capital prioritizes reinvesting in its business to achieve moderate and predictable annual volume growth, balanced with returning capital to its shareholders through dividends and share repurchases.

Magnolia’s business model prioritizes free cash flow, financial stability, and prudent capital allocation.

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

The Company’s allocation of capital prioritizes reinvesting in its business to achieve moderate and predictable annual volume growth, and remains balanced with returning capital to its shareholders through dividends and share repurchases.

Magnolia’s business model prioritizes prudent and disciplined capital allocation, free cash flow, and financial stability.

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

The Company’s gradual and measured approach toward the development of the Giddings area has created operating efficiencies leading to higher production.

Market Conditions Update

After Magnolia experienced record operating margins during 2022, natural gas and NGL prices have significantly declined and oil prices have weakened, while material and labor costs remained elevated.

This has resulted in lower revenue and lower operating margins.

As a result, Magnolia took actions to reduce its operating and capital spending to better reflect the current cost and commodity environment.

The capital spending level is in line with the principles of Magnolia’s business model and is expected to provide the Company more operational and financial flexibility going forward.

Natural gas and NGL prices have significantly declined, while material and labor costs have flattened, resulting in lower operating margins.

In 2024, lower well costs combined with improved operating efficiencies are allowing for more wells to be drilled, completed and turned in line helping to support Magnolia’s overall high-margin growth from a disciplined capital program.

Business Overview

As of September 30, 2023, Magnolia’s assets in South Texas included 42,451 gross (22,785 net) acres in the Karnes area, and 663,327 gross (475,543 net) acres in the Giddings area.

As of September 30, 2023, Magnolia held an interest in approximately 2,307 gross (1,519 net) wells, with total production of 82.7 thousand and 81.3 thousand barrels of oil equivalent per day for the three and nine months ended September 30, 2023.

Magnolia recognized net income attributable to Class A Common Stock of $102.0 million and $289.9 million, or $0.54 and $1.51 per diluted common share, for the three and nine months ended September 30, 2023.

Magnolia recognized net income of $117.5 million and $328.7 million, which includes a noncontrolling interest of $15.4 million and $38.9 million related to the Magnolia LLC Units (and corresponding shares of Class B Common Stock) held by certain affiliates of EnerVest, for the three and nine months ended September 30, 2023.

During the nine months ended September 30, 2023, the Company declared cash dividends to holders of its Class A Common Stock totaling $66.3 million.

As of September 30, 2023, the Company’s board of directors had authorized a share repurchase program of up to 40.0 million shares of Class A Common Stock.

As of March 31, 2024, Magnolia’s assets in South Texas included 72,503 gross (50,681 net) acres in the Karnes area, and 718,400 gross (527,754 net) acres in the Giddings area.

As of March 31, 2024, Magnolia held an interest in approximately 2,496 gross (1,687 net) wells, with total production of 84.8 thousand barrels of oil equivalent per day for the three months ended March 31, 2024.

Magnolia recognized net income attributable to Class A Common Stock of $85.1 million, or $0.46 per diluted common share, for the three months ended March 31, 2024.

Magnolia recognized net income of $97.6 million, which includes noncontrolling interest of $12.5 million, for the three months ended March 31, 2024.

As of March 31, 2024, the Company’s board of directors had authorized a share repurchase program of up to 40.0 million shares of Class A Common Stock.

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

The Company had repurchased 28.3 million shares under the program at a cost of $470.8 million and had 11.7 million shares of Class A Common Stock remaining under its share repurchase authorization as of September 30, 2023.

As of September 30, 2023, Magnolia owned approximately 89.5% of the interest in Magnolia LLC and the noncontrolling interest was approximately 10.5%.

The Company had repurchased 33.1 million shares under the program at a cost of $577.3 million and had 6.9 million shares of Class A Common Stock remaining under its share repurchase authorization as of March 31, 2024.

As of March 31, 2024, Magnolia owned approximately 89.3% of the interest in Magnolia LLC and the noncontrolling interest was 10.7%.

Results of Operations

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Factors Affecting the Comparability of the Historical Financial Results

Magnolia’s historical financial condition and results of operations for the periods presented may not be comparable, either from period to period or going forward, as a result of the Company’s acquisition in November 2023 of certain oil and gas producing properties including leasehold and mineral interests in the Giddings area for approximately $264.1 million, subject to customary purchase price adjustments, and an additional contingent cash consideration of up to $40.0 million through January 2026 based on future commodity prices.

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

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

Oil, Natural Gas and NGL Sales Revenues.

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

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

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

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Three Months Ended

(In thousands, except per unit data) September 30, 2023 September 30, 2022

(In thousands, except per unit data) March 31, 2024 March 31, 2023

Oil (MBbls) 3,415 3,221

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NGLs (per barrel) 19.49 22.90

Oil revenues were 77% and 66% of the Company’s total revenues for the three months ended September 30, 2023 and 2022, respectively.

Oil production was 40% and 45% of total production volume for the three months ended September 30, 2023 and 2022, respectively.

Oil revenues for the three months ended September 30, 2023 were $73.7 million lower than for the three months ended September 30, 2022.

A 14% decrease in average price decreased third quarter 2023 revenues by $44.9 million compared to the same period in the prior year while an 11% decrease in oil production decreased revenues by $28.8 million.

Natural gas revenues were 9% and 20% of the Company’s total revenues for the three months ended September 30, 2023 and 2022, respectively.

Natural gas production was 31% and 30% of total production volume for the three months ended September 30, 2023 and 2022, respectively.

Natural gas revenues for the three months ended September 30, 2023 were $73.1 million lower than the three months ended September 30, 2022.

A 75% decrease in average price decreased third quarter 2023 revenues by $75.0 million compared to the same period in the prior year, partially offset by an 8% increase in natural gas production which increased revenues by $1.9 million.

NGL revenues were 14% of the Company’s total revenues for each of the three months ended September 30, 2023 and 2022.

NGL production was 29% and 25% of total production volume for the three months ended September 30, 2023 and 2022, respectively.

NGL revenues for the three months ended September 30, 2023 were $20.6 million lower than the three months ended September 30, 2022.

A 40% decrease in average price decreased third quarter 2023 revenues by $26.5 million compared to the same period in the prior year, partially offset by a 15% increase in NGL production which increased revenues by $5.9 million.

Oil revenues were 81% and 78% of the Company’s total revenues for the three months ended March 31, 2024 and 2023, respectively.

Oil production was 44% and 45% of total production volume for the three months ended March 31, 2024 and 2023,

respectively.

Oil revenues for the three months ended March 31, 2024 were $20.1 million higher than for the three months ended March 31, 2023.

A 2% increase in average price increased first quarter 2024 revenues by $5.3 million compared to the same period in the prior year while a 6% increase in oil production increased revenues by $14.8 million.

Natural gas revenues were 7% and 9% of the Company’s total revenues for the three months ended March 31, 2024 and 2023, respectively.

Natural gas production was 30% of total production volume for each of the three months ended March 31, 2024 and 2023.

Natural gas revenues for the three months ended March 31, 2024 were $6.7 million lower than the three months ended March 31, 2023.

A 30% decrease in average price decreased first quarter 2024 revenues by $8.4 million compared to the same period in the prior year, partially offset by a 9% increase in natural gas production which increased revenues by $1.7 million.

The realized revenue pricing included the impact of gas plant fees that were netted from revenue.

NGL revenues were 12% and 13% of the Company’s total revenues for the three months ended March 31, 2024 and 2023, respectively.

NGL production was 26% and 25% of total production volume for the three months ended March 31, 2024 and 2023, respectively.

NGL revenues for the three months ended March 31, 2024 were $2.3 million lower than the three months ended March 31, 2023.

A 15% decrease in average price decreased first quarter 2024 revenues by $6.2 million compared to the same period in the prior year, partially offset by an 11% increase in NGL production which increased revenues by $3.9 million.

Operating Expenses and Other Income (Expense) .

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Three Months Ended

(In thousands, except per unit data) September 30, 2023 September 30, 2022

(In thousands, except per unit data) March 31, 2024 March 31, 2023

Operating Expenses:

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Depreciation, depletion and amortization 97,076 70,701

Impairment of oil and natural gas properties — 15,735

General and administrative expenses 23,555 19,766

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Other expense, net (4,313) (1,138)

Total other income (expense), net $ 555 $ (5,429)

Total other expense, net $ (6,625) $ (651)

Average Operating Costs per boe:

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Depreciation, depletion and amortization 12.58 9.90

Impairment of oil and natural gas properties — 2.20

General and administrative expenses 3.05 2.77

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

Lease operating expenses for the three months ended September 30, 2023 were $1.2 million, or $0.09 per boe, higher compared to the corresponding 2022 period, due to an increase in costs, including chemicals, compression, and operating and maintenance costs.

Lease operating expenses for the three months ended March 31, 2024 were $3.8 million, or $0.05 per boe, higher compared to the three months ended March 31, 2023, due to an increase in costs associated with a higher well count.

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

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

The gathering, transportation and processing costs for the three months ended September 30, 2023 were $9.0 million, or $1.22 per boe, lower than the three months ended September 30, 2022, primarily due to lower natural gas and NGL prices which resulted in lower processing costs.

Taxes other than income is comprised of production, ad valorem, and franchise taxes.

gathering, transportation and processing costs for the three months ended March 31, 2024 were $4.2 million, or $0.67 per boe, lower than the three months ended March 31, 2023, primarily due to lower natural gas and NGL prices which resulted in lower processing costs.

The Company is party to a number of contracts that are recorded gross within natural gas and NGL revenues, which track with natural gas and NGL pricing, and thereby have contributed to a decrease in gathering, transportation, and processing expense.

Taxes other than income include production, ad valorem, and franchise taxes.

These taxes are based on rates primarily established by state and local taxing authorities.

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

Taxes other than income for the three months ended September 30, 2023 were $11.8 million, or $1.60 per boe, lower compared to the three months ended September 30, 2022, primarily due to a decrease in production taxes as a result of the decrease in oil, natural gas, and NGL revenues.

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

The exploration expenses for the three months ended September 30, 2023 were $4.0 million, or $0.51 per boe, higher than the three months ended September 30, 2022, due to increased spending on seismic licenses.

Depreciation, depletion and amortization (“DD&A”) during the three months ended September 30, 2023 was $12.2 million, or $1.47 per boe, higher than the three months ended September 30, 2022, due to increased production and a higher depreciable cost basis.

The Company recognized interest income, net, during the three months ended September 30, 2023 as compared to interest expense, net during the three months ended September 30, 2022.

This $6.3 million change was driven by higher interest income realized during 2023 as a result of higher interest rates.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Oil, Natural Gas and NGL Sales Revenues.

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

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

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

Nine Months Ended

(In thousands, except per unit data) September 30, 2023 September 30, 2022

Oil (MBbls) 9,345 9,216

Natural gas (MMcf) 40,839 38,205

NGLs (MBbls) 6,045 5,134

Total (Mboe) 22,196 20,718

Average daily production:

Oil (Bbls/d) 34,229 33,760

Natural gas (Mcf/d) 149,594 139,947

NGLs (Bbls/d) 22,142 18,806

Total (boe/d) 81,303 75,890

Oil revenues $ 705,857 $ 912,702

Natural gas revenues 75,687 242,049

Natural gas liquids revenues 122,807 190,700

Total revenues $ 904,351 $ 1,345,451

Average Price:

Oil (per barrel) $ 75.54 $ 99.03

Natural gas (per Mcf) 1.85 6.34

NGLs (per barrel) 20.32 37.14

Oil revenues were 78% and 68% of the Company’s total revenues for the nine months ended September 30, 2023 and 2022, respectively.

Oil production was 42% and 44% of total production volume for the nine months ended September 30, 2023 and 2022, respectively.

Oil revenues for the nine months ended September 30, 2023 were $206.8 million lower than for the nine months ended September 30, 2022.

A 24% decrease in average price decreased revenues by $216.5 million during the nine months ended September 30, 2023 compared to the same period in the prior year, partially offset by a 1% increase in oil production which increased revenues by $9.7 million.

Natural gas revenues were 8% and 18% of the Company’s total revenues for the nine months ended September 30, 2023 and 2022, respectively.

Natural gas production was 31% of total production volume for each of the nine months ended September 30, 2023 and 2022.

Natural gas revenues for the nine months ended September 30, 2023 were $166.4 million lower than the nine months ended September 30, 2022.

A 71% decrease in average price decreased revenues by $171.3 million during the nine months ended September 30, 2023 compared to the same period in the prior year, partially offset by a 7% increase in natural gas production which increased revenues by $4.9 million.

NGL revenues were 14% of the Company’s total revenues for each of the nine months ended September 30, 2023 and 2022.

NGL production was 27% and 25% of total production volume for the nine months ended September 30, 2023 and 2022, respectively.

NGL revenues for the nine months ended September 30, 2023 were $67.9 million lower than the nine months ended September 30, 2022.

A 45% decrease in average price decreased revenues by $86.4 million during the nine months ended September 30, 2023

compared to the same period in the prior year, partially offset by an 18% increase in NGL production which increased revenues by $18.5 million.

Operating Expenses and Other Income (Expense) .

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

Nine Months Ended

(In thousands, except per unit data) September 30, 2023 September 30, 2022

Operating Expenses:

Lease operating expenses $ 115,060 $ 96,057

Gathering, transportation and processing 33,419 51,518

Taxes other than income 49,331 74,917

Exploration expenses 5,139 10,119

Asset retirement obligations accretion 2,539 2,404

Depreciation, depletion and amortization 228,868 179,331

Impairment of oil and natural gas properties 15,735 —

General and administrative expenses 57,863 55,226

Total operating expenses $ 507,954 $ 469,572

Other Income (Expense):

Interest income (expense), net $ 372 $ (21,637)

Other income, net 7,643 6,579

Total other income (expense), net $ 8,015 $ (15,058)

Average Operating Costs per boe:

Lease operating expenses $ 5.18 $ 4.64

Gathering, transportation and processing 1.51 2.49

Taxes other than income 2.22 3.62

Exploration expenses 0.23 0.49

Asset retirement obligations accretion 0.11 0.12

Depreciation, depletion and amortization 10.31 8.66

Impairment of oil and natural gas properties 0.71 —

General and administrative expenses 2.61 2.67

Lease operating expenses for the nine months ended September 30, 2023 were $19.0 million, or $0.54 per boe, higher compared to the corresponding 2022 period, due to increased activity, including workover activity, and an increase in costs, including chemicals, compression, and operating and maintenance costs.

Gathering, transportation and processing costs for the nine months ended September 30, 2023 were $18.1 million, or $0.98 per boe, lower than the nine months ended September 30, 2022, primarily due to lower natural gas and NGL prices which resulted in lower processing costs.

Taxes other than income for the nine months ended September 30, 2023 were $25.6 million, or $1.40 per boe, lower compared to the nine months ended September 30, 2022, primarily due to a decrease in production taxes as a result of the decrease in oil, natural gas, and NGL revenues.

Exploration expenses for the nine months ended September 30, 2023 were $5.0 million, or $0.26 per boe, lower than the nine months ended September 30, 2022, due to decreased spending on seismic licenses.

DD&A during the nine months ended September 30, 2023 was $49.5 million, or $1.65 per boe, higher than the nine months ended September 30, 2022 due to increased production and a higher depreciable cost basis.

During the nine months ended September 30, 2023, the Company recognized a $15.7 million proved property impairment related to the Highlander property.

General and administrative expenses during the nine months ended September 30, 2023 were $2.6 million higher, but $0.06 per boe lower, than the nine months ended September 30, 2022.

General and administrative expenses were higher year over year primarily due to higher corporate payroll expenses, but lower on a per boe basis because of increased production.

The Company recognized interest income, net, during the nine months ended September 30, 2023 as compared to interest expense, net during the nine months ended September 30, 2022.

This $22.0 million change was driven by higher interest income realized during 2023 as a result of a higher average cash balance and higher interest rates.

Taxes other than income for the three months ended March 31, 2024 were $1.4 million, or $0.38 per boe, lower compared to the three months ended March 31, 2023, primarily due to a decrease in production taxes as a result of the decrease in natural gas and NGL revenues and tax incentives realized.

Depreciation, depletion and amortization (“DD&A”) during the three months ended March 31, 2024 was $26.4 million, or $2.68 per boe, higher than the three months ended March 31, 2023, due to increased production and a higher depreciable cost basis.

During the three months ended March 31, 2023, the Company recognized a $15.7 million proved property impairment related to the Highlander property.

General and administrative expenses during the three months ended March 31, 2024 were $3.8 million, or $0.28 per boe, higher than the three months ended March 31, 2023, primarily driven by increased legal expenses, professional services, and other non-recurring costs.

The Company recognized interest expense, net, during the three months ended March 31, 2024 as compared to interest income, net during the three months ended March 31, 2023.

This $2.8 million change was driven by lower interest income realized during 2024 as a result of lower cash balances.

Other expense, net, during the three months ended March 31, 2024 was $3.2 million higher than the three months ended March 31, 2023.

This is primarily comprised of the loss on revaluation of the contingent consideration liability associated with the acquisition of certain oil and gas producing properties in the Giddings area in the fourth quarter of 2023.

Income tax expense.

The following table summarizes the Company’s income tax expense for the periods indicated.

Three Months Ended Nine Months Ended

(In thousands) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Three Months Ended

(In thousands) March 31, 2024 March 31, 2023

Current income tax expense $ 11,628 $ 4,202

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Income tax expense $ 20,336 $ 19,605

For the three months ended September 30, 2023, income tax expense was $11.9 million higher than the three months ended September 30, 2022, comprised of movements in both current and deferred income taxes.

This was primarily driven by $11.9 million of deferred income tax expense recognized in 2023 which was not recognized in 2022 due to the existence of a full valuation allowance against net deferred tax assets.

For the nine months ended September 30, 2023, income tax expense was $10.3 million higher than the nine months ended September 30, 2022, comprised of movements in both current and deferred income taxes.

This was primarily driven by $48.2 million of deferred income tax expense recognized in 2023 which was not recognized in 2022 due to the existence of a full valuation allowance against net deferred tax assets.

This was partially offset by a $37.9 million decrease in current income tax expense due to lower taxable income primarily as a result of the decline in commodity prices.

As of December 31, 2022, the Company released the valuation allowance against net deferred tax assets.

As of September 30, 2023, the Company’s total deferred tax assets were $122.5 million.

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, 2023, the Company assessed the realizability of the deferred tax assets and recorded a valuation allowance of $3.8 million to offset the deferred tax asset created by the capital loss attributable to the sale of the Company’s interest in Highlander.

For the three months ended March 31, 2024, income tax expense was $0.7 million higher than the three months ended March 31, 2023, comprised of movements in both current and deferred income taxes.

This was driven by a $7.4 million increase in current income tax expense partially offset by a $6.7 million decrease in deferred income tax expense, primarily due to the statutory reduction in accelerated depreciation of capital expenditures.

See Note 9— Income Taxes in the notes to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q for further detail.

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

As of September 30, 2023, the Company had $400.0 million of principal debt related to the 2026 Senior Notes outstanding and no outstanding borrowings related to the RBL Facility.

As of September 30, 2023, the Company had $1.1 billion of liquidity comprised of the $450.0 million of borrowing base capacity of the RBL Facility, and $618.5 million of cash and cash equivalents.

As of March 31, 2024, the Company had $400.0 million of principal debt related to the 2026 Senior Notes outstanding and no outstanding borrowings related to the RBL Facility.

As of March 31, 2024, the Company had $849.3 million of liquidity comprised of the $450.0 million of borrowing base capacity of the RBL Facility, and $399.3 million of cash and cash equivalents.

Cash and Cash Equivalents

At September 30, 2023, Magnolia had $618.5 million of cash and cash equivalents.

At March 31, 2024, Magnolia had $399.3 million of cash and cash equivalents.

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

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

Nine Months Ended

(In thousands) September 30, 2023 September 30, 2022

Three Months Ended

(In thousands) March 31, 2024 March 31, 2023

SOURCES OF CASH AND CASH EQUIVALENTS

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Class A Common Stock repurchases (51,201) (45,844)

Class B Common Stock purchases and cancellations — (138,753)

Dividends paid (24,010) (22,578)

5 unchanged sentences

Net Cash Provided by Operating Activities

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

The factors that determine operating cash flows are largely the same as those that affect net earnings, with the exception of certain non-cash expenses such as DD&A, stock based compensation, amortization of deferred financing costs, gain on sale of assets, impairment of oil and natural gas properties, non-cash exploration expenses, asset retirement obligations accretion, and deferred income tax expense.

Net cash provided by operating activities totaled $608.9 million and $1.0 billion for the nine months ended September 30, 2023 and 2022, respectively.

During the nine months ended September 30, 2023, cash provided by operating activities was negatively impacted by a decrease in realized oil and natural gas prices and net changes in operating assets and liabilities.

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

The factors that determine operating cash flows are largely the same as those that affect net earnings, with the exception of certain non-cash expenses such as DD&A, stock based compensation, amortization of deferred financing costs, revaluation of contingent consideration, impairment of oil and natural gas properties, asset retirement obligations accretion, and deferred taxes.

Net cash provided by operating activities totaled $210.9 million and $219.8 million for the three months ended March 31, 2024 and 2023, respectively.

During the three months ended March 31, 2024, cash provided by operating activities was negatively impacted by the timing of collections and a decrease in realized natural gas and NGL prices, partially offset by the timing of payments and an increase in realized oil prices.

Uses of Cash and Cash Equivalents

During the nine months ended September 30, 2023, the Company paid $53.8 million for acquisitions, primarily comprised of a $40.0 million acquisition in the Giddings area.

In addition, Magnolia paid a $22.5 million deposit for an acquisition in the Giddings area expected to close in the fourth quarter of 2023.

The remaining consideration for this acquisition will be funded with cash on hand.

The Company made individually insignificant bolt-on acquisitions and purchase price adjustments during each of the three months ended March 31, 2024 and 2023.

In addition, Magnolia paid $13.2 million in deposits for acquisitions that closed in the second quarter of 2024.

Additions to Oil and Natural Gas Properties

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

Three Months Ended Nine Months Ended

(In thousands) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Three Months Ended

(In thousands) March 31, 2024 March 31, 2023

Drilling and completion $ 118,979 $ 139,730

1 unchanged sentence

Total capital expenditures $ 120,986 $ 138,645

During the third quarter of 2023, Magnolia was running a two-rig program.

During the first quarter of 2024, Magnolia was running a two-rig program.

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

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

Capital Requirements

As of September 30, 2023 the Company’s board of directors had authorized a share repurchase program of up to 40.0 million shares of Class A Common Stock.

As of March 31, 2024 the Company’s board of directors had authorized a share repurchase program of up to 40.0 million shares of Class A Common Stock.

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

During the nine months ended September 30, 2023 and 2022, the Company repurchased 7.1 million and 6.6 million shares for a total cost of approximately $152.9 million and $144.0 million, respectively.

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 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, respectively.

As of September 30, 2023, Magnolia owned approximately 89.5% of the interest in Magnolia LLC and the noncontrolling interest was approximately 10.5%.

During the nine months ended September 30, 2023, the Company declared cash dividends to holders of its Class A Common Stock totaling $66.3 million.

During each of the three months ended March 31, 2024 and 2023, the Company repurchased 2.4 million shares under this authorization, for a total cost of approximately $52.4 million and $51.3 million, respectively.

As of March 31, 2024, Magnolia owned approximately 89.3% of the interest in Magnolia LLC and the noncontrolling interest was 10.7%.

During the three months ended March 31, 2024, the Company declared cash dividends to holders of its Class A Common Stock totaling $24.0 million.

During the same time period, cash paid for dividends was $24.0 million, inclusive of dividends on vested non-participating securities.

Additionally, $2.8 million was distributed to the Magnolia LLC Unit Holders.

During the nine months ended September 30, 2022, the Company declared cash dividends to holders of its Class A Common Stock totaling $56.4 million, of which $56.2 million was paid as of September 30, 2022.

During the three months ended March 31, 2023, the Company declared cash dividends to holders of its Class A Common Stock totaling $22.4 million, of which $22.6 million was paid as of March 31, 2023, inclusive of dividends on vested non-participating securities.

Additionally, $2.5 million was distributed to the Magnolia LLC Unit Holders.

1 unchanged sentence

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What changed 10-Q

Item 2. Management’s Discussion and Analysis