Magnolia Oil & Gas Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Magnolia is an independent oil and gas producer operating primarily in South Texas’s Eagle Ford and Austin Chalk areas.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $377.8 million | $209.1 million |
| Operating income | $235.9 million | $99.9 million |
| Net income | $208.6 million | $91.5 million |
| Net income attributable to Class A common stock | $166.0 million | $63.2 million |
| Diluted earnings per Class A share | $0.90 | $0.37 |
| Cash from operating activities | $238.9 million | $118.2 million |
| Capital expenditures | $84.2 million | $40.2 million |
- Revenue increased approximately 81%; operating income increased approximately 136%, and Class A-attributable net income increased approximately 163%.
- Average daily production rose approximately 15% to 71,835 boe/d. Reported average prices increased to $93.28/bbl for oil, $4.57/Mcf for natural gas, and $36.94/bbl for NGLs. Higher prices and production contributed to revenue growth.
- Operating margin was approximately 62% of revenue, compared with 48% in Q1 2021 (calculated as operating income divided by revenue). Higher operating costs partly offset revenue growth: lease operating expense, gathering and processing, production taxes, and DD&A all increased. G&A declined, partly reflecting the 2021 termination of the Services Agreement.
- Cash provided by operations less reported capital expenditures was approximately $154.6 million. This is a simple calculation and does not include other investing, financing, or working-capital effects.
Balance sheet, debt, and liquidity
- At March 31, 2022, cash and cash equivalents were $346.4 million; current assets were $530.3 million and current liabilities were $238.7 million.
- Gross principal debt was $400.0 million, consisting of 6.0% Senior Notes due August 2026. The balance-sheet carrying value, net of financing costs, was $388.6 million. No revolving-credit borrowings were outstanding.
- The amended and restated RBL Facility has a $450.0 million initial borrowing base, $1.0 billion in maximum commitments, and matures in February 2026. The company reported total liquidity of $796.4 million, comprising cash and borrowing-base capacity, and said it was compliant with facility covenants.
- Cash decreased $20.6 million during the quarter. Financing uses included $43.5 million of Class A repurchases, $84.7 million of Class B/LLC-unit repurchases, and $37.2 million of dividends paid.
Changes, outlook, and risks
- The company operated a two-rig program during the quarter and said it plans to spend within cash flow while maintaining low leverage. Management stated that cash, operating cash flow, and available liquidity are expected to meet cash requirements. No specific production, revenue, earnings, or capital-spending guidance was provided.
- The board increased the Class A repurchase authorization to 30 million shares in February. By quarter-end, 15.7 million shares had been repurchased under the program at a cumulative cost of $197.9 million. The company also repurchased 0.6 million shares from an EnerVest affiliate outside the program.
- The quarterly Class A dividend was $0.20 per share. Future dividend amounts and frequency remain at the board’s discretion.
- Commodity-price volatility is the principal market risk; Magnolia had no derivative contracts outstanding at quarter-end. Management also cited inflation and labor shortages as potential sources of higher operating and capital costs, alongside pandemic-related uncertainty and risks from regulation, supply and demand, and geopolitical conditions.
- Legal matters include a dispute over minority working interests in certain Karnes County assets, for which exposure was not reasonably estimable and which the company says the co-defendants retained, and an appeal concerning a drilling permit. No litigation accrual was recorded; management did not expect outstanding matters to materially affect results. Environmental coverage is not complete.
- The company recorded $18.1 million of income tax expense, versus $0.4 million in Q1 2021. It reported a $204.6 million net deferred tax asset fully offset by a valuation allowance; management said sustained taxable income could affect its valuation-allowance assessment in the next 12 months.
Key facts for investors to verify
- Whether production growth and realized commodity prices persist, and how price changes affect operating cash flow.
- Capital spending, cash generation, and the pace of Class A and Class B/LLC-unit repurchases relative to liquidity and the dividend.
- RBL borrowing-base availability, covenant compliance, and refinancing or repayment plans for the 2026 Senior Notes.
- Developments in the Karnes County working-interest litigation, drilling-permit appeal, and deferred-tax valuation allowance.