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Item 2. Management’s Discussion and Analysis

2025-07-31 compared with 2025-05-01 · 73 added, 56 removed, 151 unchanged (46% of the section changed)

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

Although it is not possible to identify all factors, these risks and uncertainties include the risk factors and the timing of any of those risk factors identified in 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, 2024 (the “2024 Form 10-K”).

and Exchange Commission, including the Company’s Annual Report on Form 10-K for the period ended December 31, 2024 (the “2024 Form 10-K”).

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

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Business Overview

As of March 31, 2025, Magnolia’s assets in South Texas included 79,067 gross (54,936 net) acres in the Karnes area, and 739,943 gross (549,967 net) acres in the Giddings area.

As of March 31, 2025, Magnolia held an interest in approximately 2,684 gross (1,818 net) wells, with total production of 96.5 thousand barrels of oil equivalent per day for the three months ended March 31, 2025.

Magnolia recognized net income attributable to Class A Common Stock of $102.9 million, or $0.54 per diluted common share, for the three months ended March 31, 2025.

Magnolia recognized net income of $106.6 million, which includes noncontrolling interest of $3.7 million related to the Magnolia LLC Units (and corresponding shares of Class B Common Stock) held by certain affiliates of EnerVest, for the three months ended March 31, 2025.

During the three months ended March 31, 2025, the Company declared cash dividends to holders of its Class A Common Stock totaling $28.9 million.

As of March 31, 2025, the Company’s board of directors had authorized a share repurchase program of up to 50.0 million shares of Class A Common Stock.

As of June 30, 2025, Magnolia’s assets in South Texas included 79,363 gross (55,381 net) acres in the Karnes area, and 741,858 gross (551,610 net) acres in the Giddings area.

As of June 30, 2025, Magnolia held an interest in approximately 2,745 gross (1,829 net) wells, with total production of 98.2 thousand and 97.4 thousand barrels of oil equivalent per day for the three and six months ended June 30, 2025, respectively.

Magnolia recognized net income attributable to Class A Common Stock of $78.1 million and $181.0 million, or $0.41 and $0.95 per diluted common share, for the three and six months ended June 30, 2025, respectively.

Magnolia recognized net income of $81.0 million and $187.7 million, which includes noncontrolling interest of $2.9 million and $6.6 million related to the Magnolia LLC Units (and corresponding shares of Class B Common Stock) held by certain affiliates of EnerVest, for the three and six months ended June 30, 2025, respectively.

During the six months ended June 30, 2025, the Company declared cash dividends to holders of its Class A Common Stock totaling $57.3 million.

As of June 30, 2025, the Company’s board of directors had authorized a share repurchase program of up to 50.0 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 40.4 million shares under the program at a cost of $759.8 million and had 9.6 million shares of Class A Common Stock remaining under its share repurchase authorization as of March 31, 2025.

As of March 31, 2025, Magnolia owned approximately 97.1% of the interest in Magnolia LLC and the noncontrolling interest was approximately 2.9%.

The Company had repurchased 42.6 million shares under the program at a cost of $808.5 million and had 7.4 million shares of Class A Common Stock remaining under its share repurchase authorization as of June 30, 2025.

As of June 30, 2025, Magnolia owned approximately 97.1% of the interest in Magnolia LLC and the noncontrolling interest was approximately 2.9%.

Results of Operations

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Magnolia’s historical financial condition and results of operations for the periods presented may not be comparable, either from period to period or going forward, as a result of the Company’s redemption of its 2026 Senior Notes that bore interest at 6.0% per annum and its issuance of the 2032 Senior Notes that bear interest at 6.875% per annum, both of which occurred in November 2024.

As a result, 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, 2025 Compared to the Three Months Ended March 31, 2024

Three and Six Months Ended June 30, 2025 Compared to the Three and Six Months Ended June 30, 2024

Oil, Natural Gas and NGL Sales Revenues

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

Three Months Ended

(In thousands, except per unit data) March 31, 2025 March 31, 2024

Three Months Ended Six Months Ended

(In thousands, except per unit data) June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024

Oil (MBbls) 3,639 3,453 7,156 6,868

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NGLs (per barrel) 19.94 18.96 20.97 19.21

Oil revenues for the three months ended March 31, 2025 were $13.6 million lower than for the three months ended March 31, 2024.

An 8% decrease in average price decreased first quarter 2025 revenues by $20.7 million compared to the same period in the prior year, while a 3% increase in oil production increased revenues by $7.1 million.

Natural gas revenues for the three months ended March 31, 2025 were $30.3 million higher than the three months ended March 31, 2024.

A 103% increase in average price increased first quarter 2025 revenues by $21.7 million compared to the same period in the prior year, and a 20% increase in natural gas production increased revenues by $8.6 million.

NGL revenues for the three months ended March 31, 2025 were $14.3 million higher than the three months ended March 31, 2024.

A 13% increase in average price increased first quarter 2025 revenues by $5.1 million compared to the same period in the prior year, and a 21% increase in NGL production increased revenues by $9.2 million.

Oil revenues for the three months ended June 30, 2025 were $49.0 million lower than the three months ended June 30, 2024.

A 22% decrease in average prices decreased second quarter 2025 revenues by $60.6 million compared to the same period in the prior year, partially offset by a 5% increase in oil production that increased revenues by $11.6 million.

Oil revenues for the six months ended June 30, 2025 were $62.6 million lower than for the six months ended June 30, 2024.

A 15% decrease in average prices

decreased revenues for the six months ended June 30, 2025 by $81.6 million compared to the same period in the prior year, partially offset by a 4% increase in oil production that increased revenues by $19.0 million.

Natural gas revenues for the three months ended June 30, 2025 were $24.3 million higher than the three months ended June 30, 2024.

A 106% increase in average prices increased second quarter 2025 revenues by $19.6 million compared to the same period in the prior year, and a 12% increase in natural gas production increased revenues by $4.7 million.

Natural gas revenues for the six months ended June 30, 2025 were $54.6 million higher than the six months ended June 30, 2024.

A 105% increase in average prices increased revenues for the six months ended June 30, 2025 by $41.6 million compared to the same period in the prior year, and a 16% increase in natural gas production increased revenues by $13.0 million.

NGL revenues for the three months ended June 30, 2025 were $7.0 million higher than the three months ended June 30, 2024.

A 5% increase in average prices increased second quarter 2025 revenues by $2.3 million compared to the same period in the prior year, and a 10% increase in NGL production increased revenues by $4.7 million.

NGL revenues for the six months ended June 30, 2025 were $21.2 million higher than the six months ended June 30, 2024.

A 9% increase in average prices increased revenues for the six months ended June 30, 2024 by $7.5 million compared to the same period in the prior year, and a 15% increase in NGL production increased revenues by $13.7 million.

Operating Expenses and Other Expense

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

Three Months Ended

(In thousands, except per unit data) March 31, 2025 March 31, 2024

Three Months Ended Six Months Ended

(In thousands, except per unit data) June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024

Operating Expenses:

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

Lease operating expenses for the three months ended March 31, 2025 were $0.9 million higher, and $0.56 per boe lower, compared to the three months ended March 31, 2024, with the overall increase due to higher production and well count.

The per boe decrease was the result of a broad cost reduction initiative in 2024 resulting in cost improvements in most expense categories including surface repair and maintenance, contract labor, equipment rentals, and fluid hauling.

Lease operating expenses for the three months ended June 30, 2025 were $0.8 million lower, and $0.52 per boe lower, than the three months ended June 30, 2024.

Lease operating expenses for the six months ended June 30, 2025 were $0.2 million higher, and $0.54 per boe lower, than the six months ended June 30, 2024.

Higher production and broad cost reduction initiatives resulted in a per boe decrease and cost improvements in most expense categories including surface repair and maintenance, contract labor, equipment rentals, fluid hauling, and workover activities.

Gathering, transportation and processing (“GTP”) 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 GTP costs for the three months ended March 31, 2025 were $6.4 million, and $0.61 per boe, higher than the three months ended March 31, 2024, primarily due to higher production and natural gas and NGL prices.

In addition, as a result of changes to certain processing contracts, a higher portion of Magnolia’s GTP costs is recognized as expense as compared to a reduction to Magnolia’s natural gas and NGL revenues between periods.

The GTP costs for the three months ended June 30, 2025 were $8.0 million, or $0.81 per boe, higher, than the three months ended June 30, 2024.

The GTP costs for the six months ended June 30, 2025 were $14.5 million, or $0.71 per boe, higher, than the six months ended June 30, 2024.

The increase in GTP costs in both periods was driven by higher natural gas and NGL prices as well as changes to certain gathering and processing contracts between periods, which resulted in a higher portion of Magnolia’s GTP costs to be recognized as expense versus a reduction to Magnolia’s natural gas and NGL revenues.

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

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

Taxes other than income for the three months ended March 31, 2025 were $2.2 million higher, and $0.01 per boe lower, compared to the three months ended March 31, 2024, primarily due to an increase in production taxes as a result of the increase in natural gas and NGL revenues.

Depreciation, depletion and amortization (“DD&A”) during the three months ended March 31, 2025 was $8.8 million higher, and $0.40 per boe lower, than the three months ended March 31, 2024.

Increased production increased overall DD&A, and an increase in oil and natural gas reserves decreased DD&A per boe.

General and administrative expenses (“G&A”) during the three months ended March 31, 2025 were $1.0 million higher, and $0.22 per boe lower, than the three months ended March 31, 2024.

G&A increased due to an increase in fees, licenses, and overall labor costs, including changes from the modification of stock based compensation awards in 2025.

The increases to G&A were partially offset by lower professional services and one-time costs incurred in 2024.

Taxes other than income for the three months ended June 30, 2025 were $1.0 million, or $0.32 per boe, lower, than the three months ended June 30, 2024, primarily due to a decrease in oil revenues.

Taxes other than income for the six months ended June 30, 2025 were $1.2 million higher, and $0.16 per boe lower, than the six months ended June 30, 2024, primarily due to an increase in ad valorem taxes as a result of higher market value of new wells brought online.

The per boe decrease was due to higher production.

Depreciation, depletion and amortization (“DD&A”) during the three months ended June 30, 2025 was $2.3 million higher, and $0.78 per boe lower, than the three months ended June 30, 2024.

DD&A for the six months ended June 30, 2025 was $11.1 million higher, and $0.59 per boe lower, than the six months ended June 30, 2024.

In both periods, higher production increased overall DD&A, and an increase in oil and natural gas reserves decreased DD&A per boe.

General and administrative expenses (“G&A”) during the three months ended June 30, 2025 were $0.4 million higher, and $0.18 per boe lower, than the three months ended June 30, 2024.

G&A expenses during the six months ended June 30, 2025 were $1.5 million higher, and $0.19 per boe lower, than the six months ended June 30, 2024.

G&A increased in both periods due to an increase in overall labor costs, including changes from the modification of stock based compensation awards in 2025, partially offset by lower professional services and certain one-time costs incurred in 2024.

G&A per boe decreased due to higher production.

Interest expense, net, during the three months ended March 31, 2025 was $2.9 million higher than the three months ended March 31, 2024, primarily driven by lower interest income realized during 2025 as a result of lower interest rates and cash balances.

Other income, net, during the three months ended March 31, 2025 was $1.2 million compared to other expense, net of $4.3 million during the three months ended March 31, 2024.

The change year-over-year is primarily comprised of the 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.

Interest expense, net, during the three months ended June 30, 2025 was $2.1 million higher than the three months ended June 30, 2024.

Interest expense, net, during the six months ended June 30, 2025 was $5.0 million higher than the six months ended June 30, 2024.

The increase in both periods was primarily driven by lower interest income realized during 2025 as a result of lower interest rates and cash balances.

Other expense, net, during the three months ended June 30, 2025 was $0.2 million compared to other income, net of $1.0 million during the three months ended June 30, 2024.

Other income, net, during the six months ended June 30, 2025 was $1.0 million compared to other expense, net of $3.3 million during the six months ended June 30, 2024.

The change year-over-year is primarily comprised of the revaluation of the contingent consideration liability associated with the prior acquisition of certain oil and gas producing properties in the Giddings area, offset by a loss on sale of other assets in 2025.

Income Tax Expense

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

Three Months Ended

(In thousands) March 31, 2025 March 31, 2024

Three Months Ended Six Months Ended

(In thousands) June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024

Current income tax expense $ 4,126 $ 10,528 $ 16,922 $ 22,156

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Income tax expense $ 20,938 $ 26,769 $ 46,075 $ 47,104

For the three months ended March 31, 2025, income tax expense was $4.8 million higher than the three months ended March 31, 2024, comprised of movements in both current and deferred income taxes.

This was driven by a $1.2 million increase in current income tax expense and a $3.6 million increase in deferred income tax expense, primarily due to an increase in income before income taxes, an increased controlling interest, and the statutory reduction in accelerated depreciation of capital expenditures.

For the three months ended June 30, 2025, income tax expense was $5.8 million lower than the three months ended June 30, 2024 driven by a $6.4 million decrease in current income tax expense and offset by a $0.6 million increase in deferred income tax expense.

Income tax expense during the six months ended June 30, 2025 was $1.0 million lower compared to the six months ended June 30, 2024, driven by a $5.2 million decrease in current income tax expense and offset by a $4.2 million increase in deferred income tax expense.

The decrease in tax expense was primarily due to a decrease in income before income taxes and additional tax credits, partially offset by an increased controlling interest.

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 March 31, 2025, the Company had $400.0 million of principal debt related to the 2032 Senior Notes outstanding and no outstanding borrowings related to the RBL Facility.

As of March 31, 2025, the Company had $697.6 million of liquidity comprised of the $450.0 million of borrowing capacity under the RBL Facility, and $247.6 million of cash and cash equivalents.

As of June 30, 2025, the Company had $400.0 million of principal debt related to the 2032 Senior Notes outstanding and no outstanding borrowings related to the RBL Facility.

As of June 30, 2025, the Company had $701.8 million of liquidity comprised of the $450.0 million of borrowing capacity under the RBL Facility, and $251.8 million of cash and cash equivalents.

Cash and Cash Equivalents

At March 31, 2025, Magnolia had $247.6 million of cash and cash equivalents.

At June 30, 2025, Magnolia had $251.8 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:

Three Months Ended

(In thousands) March 31, 2025 March 31, 2024

Six Months Ended

(In thousands) June 30, 2025 June 30, 2024

SOURCES OF CASH AND CASH EQUIVALENTS

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Acquisitions $ (39,653) $ (150,172)

Deposits for acquisitions of oil and natural gas properties — (13,150)

Additions to oil and natural gas properties (231,455) (247,063)

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Class A Common Stock repurchases (100,932) (80,018)

Class B Common Stock purchases and cancellations — (76,740)

Dividends paid (57,261) (47,830)

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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 $224.5 million and $210.9 million for the three months ended March 31, 2025 and 2024, respectively.

During the three months ended March 31, 2025, cash provided by operating activities was positively impacted by increased production and an increase in realized natural gas and NGL prices, partially offset by the timing of receipts and payments and a decrease in realized oil prices.

Net cash provided by operating activities totaled $423.2 million and $480.3 million for the six months ended June 30, 2025 and 2024, respectively.

During the six months ended June 30, 2025, cash provided by operating activities was negatively impacted by the timing of receipts and payments and a decrease in realized oil prices, partially offset by increased production and an increase in realized natural gas and NGL prices.

Uses of Cash and Cash Equivalents

The Company made individually insignificant bolt-on acquisitions during each of the three months ended March 31, 2025 and 2024.

In addition, during the three months ended March 31, 2024, Magnolia paid $13.2 million in deposits for acquisitions that closed in the second quarter of 2024.

The Company made individually insignificant bolt-on acquisitions during each of the six months ended June 30, 2025 and 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

(In thousands) March 31, 2025 March 31, 2024

Three Months Ended Six Months Ended

(In thousands) June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024

Drilling and completion $ 95,247 $ 123,370 $ 225,686 $ 242,349

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Total capital expenditures $ 100,287 $ 126,077 $ 231,455 $ 247,063

During the first quarter of 2025, Magnolia operated two rigs.

During the second quarter of 2025, Magnolia operated two rigs.

The activity during the second quarter of 2025 was largely driven by the number of operated and non-operated drilling rigs.

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.

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Capital Requirements

As of March 31, 2025 the Company’s board of directors had authorized a share repurchase program of up to 50.0 million shares of Class A Common Stock.

As of June 30, 2025, the Company’s board of directors had authorized a share repurchase program of up to 50.0 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 each of the three months ended March 31, 2025 and 2024, the Company repurchased 2.2 million and 2.4 million shares for a total cost of approximately $52.0 million and $52.4 million, respectively.

As of March 31, 2025, Magnolia owned approximately 97.1% of the interest in Magnolia LLC and the noncontrolling interest was approximately 2.9%.

During the three months ended March 31, 2025, the Company declared and paid cash dividends to holders of its Class A Common Stock totaling $28.9 million.

During each of the six months ended June 30, 2025 and 2024, the Company repurchased 4.4 million and 3.4 million shares for a total cost of approximately $100.7 million and $78.3 million, respectively.

During the six months ended June 30, 2024, Magnolia LLC repurchased and subsequently canceled 3.0 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock for $76.7 million of cash consideration.

As of June 30, 2025, Magnolia owned approximately 97.1% of the interest in Magnolia LLC and the noncontrolling interest was approximately 2.9%.

During the six months ended June 30, 2025, the Company declared and paid cash dividends to holders of its Class A Common Stock totaling $57.3 million.

Additionally, $1.7 million was distributed to the Magnolia LLC Unit Holders.

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

During the six months ended June 30, 2024, the Company declared and paid cash dividends to holders of its Class A Common Stock totaling $47.8 million.

Additionally, $5.7 million was distributed to the Magnolia LLC Unit Holders.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis