Magnolia Oil & Gas Corp 10-Q

Item 1. Financial Statements Magnolia Oil & Gas Corporation Consolidated Balance Sheets (In thousands) March 31, 2024 December 31, 2023 ASSETS (Unaudited) (Audited) CURRENT ASSETS Cash and cash equivalents $ 399,317 $ 401,121 Accounts receivable 196,004 189,705 Drilling advances 1,263 12 Other current assets 951 435 Total current assets 597,535 591,273 PROPERTY, PLANT AND EQUIPMENT Oil and natural gas properties 3,882,038 3,743,580 Other 10,323 9,774 Accumulated depreciation, depletion and amortization ( 1,798,419 ) ( 1,701,333 ) Total property, plant and equipment, net 2,093,942 2,052,021 OTHER ASSETS Deferred financing costs, net 3,388 3,836 Deferred tax assets 81,605 90,358 Other long-term assets 31,472 18,728 Total other assets 116,465 112,922 TOTAL ASSETS $ 2,807,942 $ 2,756,216 LIABILITIES AND EQUITY CURRENT LIABILITIES Accounts payable $ 219,604 $ 193,212 Other current liabilities ( Note 6) 130,407 121,675 Total current liabilities 350,011 314,887 LONG-TERM LIABILITIES Long-term debt, net 393,480 392,839 Asset retirement obligations, net of current 148,689 148,467 Other long-term liabilities 17,978 17,355 Total long-term liabilities 560,147 558,661 COMMITMENTS AND CONTINGENCIES ( Note 8) EQUITY Class A Common Stock, $ 0.0001 par value, 1,300,000 shares authorized, 215,177 shares issued and 181,494 shares outstanding in 2024 and 214,497 shares issued and 183,164 shares outstanding in 2023 22 21 Class B Common Stock, $ 0.0001 par value, 225,000 shares authorized, 21,827 shares issued and outstanding in 2024 and 2023 2 2 Additional paid-in capital 1,745,157 1,743,930 Treasury Stock, at cost, 33,683 shares and 31,333 shares in 2024 and 2023, respectively ( 591,175 ) ( 538,445 ) Retained earnings 547,261 486,162 Noncontrolling interest 196,517 190,998 Total equity 1,897,784 1,882,668 TOTAL LIABILITIES AND EQUITY $ 2,807,942 $ 2,756,216 The accompanying notes are an integral part of these consolidated financial statements. 1 Magnolia Oil & Gas Corporation Consolidated Statements of Operations (Unaudited) (In thousands, except per share data) Three Months Ended March 31, 2024 March 31, 2023 REVENUES Oil revenues $ 259,182 $ 239,122 Natural gas revenues 21,095 27,771 Natural gas liquids revenues 39,140 41,489 Total revenues 319,417 308,382 OPERATING EXPENSES Lease operating expenses 46,150 42,371 Gathering, transportation and processing 8,537 12,732 Taxes other than income 17,898 19,292 Exploration expenses 25 11 Asset retirement obligations accretion 1,618 841 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 Total operating expenses 194,859 181,449 OPERATING INCOME 124,558 126,933 OTHER INCOME (EXPENSE) Interest income (expense), net ( 2,312 ) 487 Other expense, net ( 4,313 ) ( 1,138 ) Total other expense, net ( 6,625 ) ( 651 ) INCOME BEFORE INCOME TAXES 117,933 126,282 Income tax expense 20,336 19,605 NET INCOME 97,597 106,677 LESS: Net income attributable to noncontrolling interest 12,511 10,342 NET INCOME ATTRIBUTABLE TO CLASS A COMMON STOCK $ 85,086 $ 96,335 NET INCOME PER SHARE OF CLASS A COMMON STOCK Basic $ 0.46 $ 0.50 Diluted $ 0.46 $ 0.50 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic 182,368 191,780 Diluted 182,424 192,054 The accompanying notes are an integral part of these consolidated financial statements. 2 Magnolia Oil & Gas Corporation Consolidated Statements of Changes in Equity (Unaudited) (In thousands) Class A Common Stock Class B Common Stock Additional Paid In Capital Treasury Stock Retained Earnings Total Stockholders’ Equity Noncontrolling Interest Total Equity For the Three Months Ended March 31, 2023 Shares Value Shares Value Shares Value 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 Stock based compensation expense, net of forfeitures — — — — 3,386 — — — 3,386 386 3,772 Changes in ownership interest adjustment — — — — 3,940 — — — 3,940 ( 3,940 ) — Common stock issued related to stock based compensation and other, net 628 — — — ( 6,127 ) — — — ( 6,127 ) ( 700 ) ( 6,827 ) Class A Common Stock repurchases — — — — — 2,400 ( 51,271 ) — ( 51,271 ) — ( 51,271 ) Dividends declared ($ 0.115 per share) — — — — — — — ( 22,368 ) ( 22,368 ) — ( 22,368 ) 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, 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 For the Three Months Ended March 31, 2024 Balance, December 31, 2023 214,497 $ 21 21,827 $ 2 $ 1,743,930 31,333 $ ( 538,445 ) $ 486,162 $ 1,691,670 $ 190,998 $ 1,882,668 Stock based compensation expense, net of forfeitures — — — — 4,159 — — — 4,159 499 4,658 Changes in ownership interest adjustment — — — — 3,862 — — — 3,862 ( 3,862 ) — Common stock issued related to stock based compensation and other, net 680 1 — — ( 6,588 ) — — — ( 6,587 ) ( 792 ) ( 7,379 ) Class A Common Stock repurchases — — — — — 2,350 ( 52,363 ) — ( 52,363 ) — ( 52,363 ) Dividends declared ($ 0.13 per share) — — — — — — — ( 23,987 ) ( 23,987 ) — ( 23,987 ) Distributions to noncontrolling interest owners — — — — — — — — — ( 2,837 ) ( 2,837 ) Adjustment to deferred taxes — — — — ( 206 ) — — — ( 206 ) — ( 206 ) Tax impact of equity transactions — — — — — — ( 367 ) — ( 367 ) — ( 367 ) Net income — — — — — — — 85,086 85,086 12,511 97,597 Balance, March 31, 2024 215,177 $ 22 21,827 $ 2 $ 1,745,157 33,683 $ ( 591,175 ) $ 547,261 $ 1,701,267 $ 196,517 $ 1,897,784 The accompanying notes are an integral part of these consolidated financial statements. 3 Magnolia Oil & Gas Corporation Consolidated Statements of Cash Flows (Unaudited) ( In thousands) Three Months Ended March 31, 2024 March 31, 2023 CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME $ 97,597 $ 106,677 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 97,076 70,701 Exploration expenses, non-cash 1 5 Impairment of oil and natural gas properties — 15,735 Asset retirement obligations accretion 1,618 841 Amortization of deferred financing costs 1,089 1,042 Deferred income tax expense 8,708 15,403 Loss on revaluation of contingent consideration 4,205 — Stock based compensation 4,658 3,772 Other 2,921 — Changes in operating assets and liabilities: Accounts receivable ( 9,341 ) 19,199 Accounts payable 19,424 ( 12,038 ) Accrued liabilities ( 17,246 ) ( 9,461 ) Drilling advances ( 1,251 ) 3,327 Other assets and liabilities, net 1,473 4,620 Net cash provided by operating activities 210,932 219,823 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions ( 13,359 ) 3,691 Deposits for acquisitions of oil and natural gas properties ( 13,150 ) — Additions to oil and natural gas properties ( 120,986 ) ( 138,645 ) Changes in working capital associated with additions to oil and natural gas properties 20,244 ( 14,977 ) Other investing ( 57 ) ( 284 ) Net cash used in investing activities ( 127,308 ) ( 150,215 ) CASH FLOW FROM FINANCING ACTIVITIES Class A Common Stock repurchases ( 51,201 ) ( 45,844 ) Dividends paid ( 24,010 ) ( 22,578 ) Distributions to noncontrolling interest owners ( 2,837 ) ( 2,510 ) Other financing activities ( 7,380 ) ( 6,833 ) Net cash used in financing activities ( 85,428 ) ( 77,765 ) NET CHANGE IN CASH AND CASH EQUIVALENTS ( 1,804 ) ( 8,157 ) Cash and cash equivalents – Beginning of period 401,121 675,441 Cash and cash equivalents – End of period $ 399,317 $ 667,284 The accompanying notes are an integral part of these consolidated financial statements. 4 Magnolia Oil & Gas Corporation Notes to Consolidated Financial Statements 1. Description of Business and Basis of Presentation Organization and Nature of Operations 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 natural gas liquid (“NGL”) reserves. 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 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. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, certain disclosures normally included in an Annual Report on Form 10-K have been omitted. The consolidated financial statements and related notes included in this Quarterly Report should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2023 (the “2023 Form 10-K”). Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated financial statements included in the Company’s 2023 Form 10-K. In the opinion of management, all normal, recurring adjustments and accruals considered necessary to present fairly, in all material respects, the Company’s interim financial results have been included. Operating results for the periods presented are not necessarily indicative of expected results for the full year. The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of intercompany transactions and balances. The Company’s interests in oil and natural gas exploration and production ventures and partnerships are proportionately consolidated. The Company reflects a noncontrolling interest representing primarily the interest owned by the Magnolia LLC Unit Holders through their ownership of Magnolia LLC Units in the consolidated financial statements. The noncontrolling interest is presented as a component of equity. See Note 10—Stockholders’ Equity for further discussion of the noncontrolling interest. 2. Summary of Significant Accounting Policies As of March 31, 2024, 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 2023 Form 10-K. Recent Accounting Pronouncements In December 2023, the Financial Standards Accounting Board (FASB) issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for annual periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures. 3. Revenue Recognition Magnolia’s revenues include the sale of crude oil, natural gas, and NGLs. The Company has concluded that disaggregating revenue by product type appropriately depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors and has reflected this disaggregation of revenue on the Company’s consolidated statements of operations for all periods presented. 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 $ 125.3 million as of March 31, 2024 and $ 124.4 million as of December 31, 2023. 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 2023 Form 10-K. 5 4. Acquisitions 2024 Acquisitions On April 30, 2024, the Company acquired certain oil and gas producing properties including leasehold and mineral interests in the Giddings area for approximately $ 125.0 million, subject to customary purchase price adjustments. During the three months ended March 31, 2024, the Company paid a $ 12.5 million deposit related to this acquisition. The remaining consideration was funded at closing with cash on hand. 2023 Acquisitions In November 2023, the Company acquired certain oil and gas producing properties including leasehold and mineral interests in the Giddings area for $ 264.1 million, subject to customary purchase price adjustments. The seller may also receive up to a maximum of $ 40.0 million in additional contingent cash consideration through January 2026 based on future commodity prices. For more information regarding the contingent consideration, refer to Note 5—Fair Value Measurements . In July 2023, the Company completed the acquisition of certain oil and natural gas assets located in the Giddings area for $ 41.8 million. The Company accounted for the aforementioned acquisitions as asset acquisitions. 5. Fair Value Measurements Certain of the Company’s assets and liabilities are carried at fair value and measured either on a recurring or nonrecurring basis. The Company’s fair value measurements are based either on actual market data or assumptions that other market participants would use in pricing an asset or liability in an orderly transaction, using the valuation hierarchy prescribed by GAAP under Accounting Standards Codification (“ASC”) 820. The three levels of the fair value hierarchy under ASC 820 are as follows: Level 1 - Quoted prices (unadjusted) in active markets for identical investments at the measurement date are used. Level 2 - Pricing inputs are other than quoted prices included within Level 1 that are observable for the investment, either directly or indirectly. Level 2 pricing inputs include quoted prices for similar investments in active markets, quoted prices for identical or similar investments in markets that are not active, inputs other than quoted prices that are observable for the investment, and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 - Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. The inputs used in determination of fair value require significant judgment and estimation. Fair Value of Financial Instruments 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, 2024 and December 31, 2023 are as follows: March 31, 2024 December 31, 2023 (In thousands) Carrying Value Fair Value Carrying Value Fair Value Long-term debt $ 393,480 $ 393,639 $ 392,839 $ 394,356 The fair value of the 2026 Senior Notes at March 31, 2024 and December 31, 2023 is based on unadjusted quoted prices in an active market, which is considered a Level 1 input in the fair value hierarchy. 6 Recurring Fair Value Measurements In November 2023, the Company acquired certain oil and gas producing properties including leasehold and mineral interests in the Giddings area. As part of this transaction, the seller may receive up to $ 40.0 million in contingent cash consideration based on future commodity prices. The contingent consideration is payable in three tranches based on average NYMEX WTI prices for (i) the period beginning July 1, 2023 through December 31, 2023, (ii) the year ending December 31, 2024, and (iii) the year ending December 31, 2025. The fair value of the contingent consideration is estimated using observable market data (NYMEX WTI forward price curve) and Monte Carlo simulation models, which are considered Level 2 inputs in the fair value hierarchy. The fair value of the contingent consideration carried at fair value within the Company’s consolidated balance sheets at March 31, 2024 and December 31, 2023 are as follows: (In thousands) March 31, 2024 December 31, 2023 Included within other current liabilities $ 6,678 $ 6,700 Included within other long-term liabilities 9,108 7,631 Total fair value $ 15,786 $ 14,331 The first tranche was settled for $ 2.7 million in January 2024. A loss on revaluation of the remaining tranches of $ 4.2 million is included in “Other income, net” on the Company’s consolidated statements of operations for the three months ended March 31, 2024. 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. Nonrecurring Fair Value Measurements Certain of the Company’s assets and liabilities are measured at fair value on a nonrecurring basis. Specifically, stock based compensation is not measured at fair value on an ongoing basis but is subject to fair value calculations in certain circumstances. For further detail, see Note 11—Stock Based Compensation in the notes to the consolidated financial statements. There were no other material nonrecurring fair value measurements as of March 31, 2024 or December 31, 2023. 6. Other Current Liabilities The following table provides detail of the Company’s other current liabilities for the periods presented: (In thousands) March 31, 2024 December 31, 2023 Accrued capital expenditures $ 54,375 $ 34,131 Other 76,032 87,544 Total other current liabilities $ 130,407 $ 121,675 7 7. Long-term Debt The Company’s long-term debt is comprised of the following: (In thousands) March 31, 2024 December 31, 2023 Revolving credit facility $ — $ — Senior Notes due 2026 400,000 400,000 Total long-term debt 400,000 400,000 Less: Unamortized deferred financing cost ( 6,520 ) ( 7,161 ) Long-term debt, net $ 393,480 $ 392,839 Credit Facility 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, 2024, the Company was in compliance with all covenants under the RBL Facility. 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 income (expense), net” in the Company’s consolidated statements of operations. The Company recognized interest expense related to the RBL Facility of $ 1.0 million for each of the three months ended March 31, 2024 and 2023. 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, 2024 and December 31, 2023. The Company did no t have any outstanding borrowings under the RBL Facility as of March 31, 2024. 2026 Senior Notes On July 31, 2018, the Issuers issued and sold $ 400.0 million aggregate principal amount of 2026 Senior Notes in a private placement under Rule 144A and Regulation S under the Securities Act of 1933, as amended. 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. 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 income (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 sheets as of March 31, 2024 and December 31, 2023. The Company recognized interest expense related to the 2026 Senior Notes of $ 6.6 million for each of the three months ended March 31, 2024 and 2023. 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. 8 8. Commitments and Contingencies Legal Matters From time to time, the Company is or may become involved in litigation in the ordinary course of business. Certain of the Magnolia LLC Unit Holders and EnerVest Energy Institutional Fund XIV-C, L.P. (collectively the “Co-Defendants”) and the Company have been named as defendants in a lawsuit where the plaintiffs claim to be entitled to a minority working interest in certain Karnes County Assets. The litigation is in the pre-trial stage. The exposure related to this litigation is currently not reasonably estimable. 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. After the Commission affirmed the granting of the permit, and after judicial review of the Commission’s order by the 53rd Judicial District Court Travis County, Texas (the “District Court”), the District Court reversed and remanded the Commission’s order. Upon appeal to the Third Court of Appeals in Austin, Texas (the “Court of Appeals”), the Court of Appeals reversed in part and affirmed in part the District Court’s ruling and remanded the matter to the Commission. The plaintiffs filed a petition for review with the Supreme Court of Texas in late 2023. Matters that are probable of unfavorable outcome to Magnolia and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, Magnolia’s estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters. 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 after consideration of recorded accruals. Actual amounts could differ materially from management’s estimates. Environmental Matters The Company, as an owner or lessee and operator of oil and natural gas properties, is subject to various federal, state, and local laws and regulations relating to discharge of materials into, and the protection of, the environment. These laws and regulations may, among other things, impose liability on a lessee under an oil and natural gas lease for the cost of pollution clean-up resulting from operations and subject the lessee to liability for pollution damages. In some instances, the Company may be directed to suspend or cease operations in an affected area. The Company maintains insurance coverage, which it believes is customary in the industry, although the Company is not fully insured against all environmental risks. 9. Income Taxes The Company’s income tax provision consists of the following components: Three Months Ended (In thousands) March 31, 2024 March 31, 2023 Current: Federal $ 10,981 $ 3,650 State 647 552 Total current 11,628 4,202 Deferred: Federal 8,225 14,820 State 483 583 Total deferred 8,708 15,403 Income tax expense $ 20,336 $ 19,605 The Company is subject to U.S. federal income tax and margin tax in the state of Texas. 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 March 31, 2024 and 2023 was 17.2 % and 15.5 %, 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 changes in valuation allowances. 9 As of March 31, 2024, 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, 2024, 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. As of March 31, 2024, the Company’s total deferred tax assets were $ 87.2 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. In making this determination, the Company considered all available positive and negative evidence and made certain assumptions. 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 March 31, 2024, the Company recorded a valuation allowance of $ 5.6 million to offset the deferred tax asset created by the capital loss attributable to the sale of the Company’s interest in Highlander. 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. As of March 31, 2024, the Company is in compliance with all applicable provisions of the IRA, including the excise tax on stock buybacks. The Company is not subject to the corporate alternative minimum tax. The stock buyback excise tax did not have a material impact on the Company’s consolidated financial statements. The Company will continue to evaluate the impacts of the IRA in future tax years. 10. Stockholders’ Equity Class A Common Stock At March 31, 2024, there were 215.2 million shares of Class A Common Stock issued and 181.5 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. 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. Class B Common Stock At March 31, 2024, 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. The holders of Class B Common Stock generally have the right to exchange all or a portion of their shares of Class B Common Stock, together with an equal number of Magnolia LLC Units, for the same number of shares of Class A Common Stock or, at Magnolia LLC’s option, an equivalent amount of cash. Upon the future redemption or exchange of Magnolia LLC Units held by any holder of Class B Common Stock, a corresponding number of shares of Class B Common Stock held by such holder of Class B Common Stock will be canceled. In the event of a liquidation, dissolution, or winding up of Magnolia LLC, the holders of the Class B Common Stock, through their ownership of Magnolia LLC Units, 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 units of Magnolia LLC, if any, having preference over the common units. The holders of the Class B Common Stock have no preemptive or other subscription rights, and there are no sinking fund provisions applicable to such shares. Share Repurchases 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. In addition, the Company may repurchase shares pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit the Company to repurchase shares at times that may otherwise be prohibited under the Company’s insider trading policy. The share repurchase program does not require purchases to be made within a particular time frame. 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. 10 Dividends and Distributions 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 and distributions to the Magnolia LLC Unit Holders are recorded as a reduction of noncontrolling interest. 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, 2024 and the year ended December 31, 2023, 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: Record Date Payment Date Dividend/ Distribution Amount per share (1) Distributions by Magnolia LLC (2) Dividends Declared by the Company Distributions to Magnolia LLC Unit Holders (In thousands, except per share amounts) February 16, 2024 March 1, 2024 $ 0.130 $ 26,824 $ 23,987 $ 2,837 November 9, 2023 December 1, 2023 $ 0.115 $ 24,023 $ 21,513 $ 2,510 August 10, 2023 September 1, 2023 $ 0.115 $ 24,321 $ 21,811 $ 2,510 May 11, 2023 June 1, 2023 $ 0.115 $ 24,627 $ 22,117 $ 2,510 February 10, 2023 March 1, 2023 $ 0.115 $ 24,878 $ 22,368 $ 2,510 (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 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 March 31, 2024, Magnolia owned approximately 89.3 % of the interest in Magnolia LLC and the noncontrolling interest was approximately 10.7 %. Highlander was a joint venture whereby MGY Louisiana LLC, a wholly owned subsidiary of Magnolia Operating, held approximately 84.7 % of the units of Highlander, with the remaining 15.3 % attributable to noncontrolling interest. On May 30, 2023, the Company sold its interest in Highlander. 11. Stock Based Compensation 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 March 31, 2024. 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 $ 4.7 million and $ 3.8 million for the three months ended March 31, 2024 and 2023, respectively. The Company has elected to account for forfeitures of awards granted under the Plan as they occur in determining compensation expense. The total income tax benefit recognized for stock that vested during the three months ended March 31, 2024 and 2023 was $ 4.8 million and $ 4.4 million, respectively. 11 The following table presents a summary of Magnolia’s unvested RSU, PRSU, and PSU activity for the three months ended March 31, 2024. Restricted Stock Units Performance Restricted Stock Units Performance Stock Units 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, 2023 1,074,886 $ 20.32 943,574 $ 13.66 232,700 $ 24.69 Granted 857,361 20.36 — — 372,202 21.12 Vested ( 348,110 ) 18.94 ( 648,548 ) 11.08 ( 5,264 ) 24.18 Forfeited ( 14,140 ) 22.09 ( 9,036 ) 18.95 ( 19,677 ) 22.41 Unvested at March 31, 2024 1,569,997 $ 20.62 285,990 $ 19.34 579,961 $ 22.48 The weighted average grant date fair values of the RSUs, PRSUs, and PSUs granted during the three months ended March 31, 2023 were $ 23.06 , $ 22.96 , and $ 24.69 per share, respectively. Restricted Stock Units The Company grants service-based RSU awards to employees, which generally vest and settle 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. RSUs are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ceases to be an employee or director of the Company prior to vesting of the award. 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 three months ended March 31, 2024 and 2023 were $ 7.9 million and $ 7.2 million, respectively. Unrecognized compensation expense related to unvested RSUs as of March 31, 2024 was $ 28.8 million, which the Company expects to recognize over a weighted average period of 2.6 years. Performance Restricted Stock Units and Performance Stock Units The Company grants PRSUs to certain employees. Each PRSU represents the contingent right to receive one share of Class A Common Stock once the PRSU is both vested and earned. PRSUs generally vest either ratably over a three-year service period or at the end of a three-year service period, in each case, subject to the recipient’s continued employment or service through each applicable vesting date. Each PRSU is earned based on whether Magnolia’s stock price achieves a target average stock price for any 20 consecutive trading days during the five-year performance period (“Performance Condition”). If PRSUs are not earned by the end of the five-year performance period, the PRSUs will be forfeited and no shares of Class A Common Stock will be issued, even if the vesting conditions have been met. 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 PRSUs that vested during the three months ended March 31, 2024 and 2023 were $ 14.9 million and $ 7.0 million, respectively. Unrecognized compensation expense related to unvested PRSUs as of March 31, 2024 was $ 1.8 million, which the Company expects to recognize over a weighted average period of 1.1 years. The Company grants PSUs to certain employees. Each PSU, to the extent earned, represents the contingent right to receive one share of Class A Common Stock and the awardee may earn between zero and 150 % of the target number of PSUs granted based on the total shareholder return (“TSR”) of the Class A Common Stock relative to the TSR achieved by a specific industry peer group over a three-year performance period. 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 PSUs that vested during the three months ended March 31, 2024 and 2023 were $ 0.1 million and $ 6.7 million, respectively. Unrecognized compensation expense related to unvested PSUs as of March 31, 2024 was $ 10.6 million, which the Company expects to recognize over a weighted average period of 2.5 years. 12 The following table summarizes the Monte Carlo simulation assumptions used to calculate the grant date fair value of the PSUs in 2024 and 2023. Three Months Ended PSU Grant Date Fair Value Assumptions March 31, 2024 March 31, 2023 Expected term (in years) 2.88 2.88 Expected volatility 45.09 % 60.80 % Risk-free interest rate 4.35 % 4.15 % Dividend yield 2.48 % 1.93 % 12. Earnings Per Share 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 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 (In thousands, except per share data) March 31, 2024 March 31, 2023 Basic: Net income attributable to Class A Common Stock $ 85,086 $ 96,335 Less: Dividends and net income allocated to participating securities 1,101 997 Net income, net of participating securities $ 83,985 $ 95,338 Weighted average number of common shares outstanding during the period - basic 182,368 191,780 Net income per share of Class A Common Stock - basic $ 0.46 $ 0.50 Diluted: Net income attributable to Class A Common Stock $ 85,086 $ 96,335 Less: Dividends and net income allocated to participating securities 1,101 996 Net income, net of participating securities $ 83,985 $ 95,339 Weighted average number of common shares outstanding during the period - basic 182,368 191,780 Add: Dilutive effect of stock based compensation and other 56 274 Weighted average number of common shares outstanding during the period - diluted 182,424 192,054 Net income per share of Class A Common Stock - diluted $ 0.46 $ 0.50 For each of the three months ended March 31, 2024 and 2023, the Company excluded 21.8 million 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. 13. Related Party Transactions For the three months ended March 31, 2024 and 2023, there were no related party transactions with an entity that 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.” 13 14. Supplemental Cash Flow Supplemental cash flow disclosures are presented below: Three Months Ended (In thousands) March 31, 2024 March 31, 2023 Supplemental cash items: Cash paid for income taxes $ — $ — Cash paid for interest 12,588 12,019 Supplemental non-cash investing and financing activity: Accrued capital expenditures 54,375 52,946 Liabilities assumed in connection with acquisitions 6,968 — Supplemental non-cash lease operating activity: Right-of-use assets obtained in exchange for operating lease obligations 2,440 6,412 15. Subsequent Events On May 2, 2024, the Company’s board of directors declared a quarterly cash dividend of $ 0.13 per share of Class A Common Stock, and Magnolia LLC declared a cash distribution of $ 0.13 per Magnolia LLC Unit to each holder of Magnolia LLC Units, each payable on June 3, 2024 to shareholders or members of record, as applicable, as of May 13, 2024.