Magnolia Oil & Gas Corporation Announces Third Quarter 2019 Results

Magnolia Oil & Gas Corporation (“Magnolia,” “we,” “our,” or the “Company”) (NYSE: MGY) today announced its financial and operational results for the third quarter of 2019.

Third Quarter 2019 Summary Financial Results:

• Total reported net income: $17.4 million
• Earnings per share - diluted: $0.05
• Adjusted net income(1): $16.2 million; Weighted average total shares outstanding(2): 258.9 million
• Adjusted earnings per share(1): $0.06
• Adjusted EBITDAX(1): $183.4 million
• Capital expenditures - drilling and completions ("D&C"): $88.4 million
• Cash acquisition expenditures: $1.3 million
• Cash balance as of September 30, 2019: $164.5 million

Third Quarter 2019 Highlights:

• Magnolia reported third quarter net income attributable to Class A Common Stock of $7.8 million, or $0.05 per diluted share. Total adjusted net income including noncontrolling interest was $16.2 million, or $0.06 per adjusted diluted share, which excludes a non-cash special item associated with our earlier warrant exchange.

• Our production averaged 71.3 thousand barrels of oil equivalent per day ("Mboe/d") for the third quarter of 2019, a 9.5 percent increase compared to 65.1 Mboe/d in the second quarter. Third quarter oil production averaged 53.7 percent of total volumes. Both total production and total oil volumes were at the high end of our guidance, with the strong sequential increase in production driven almost entirely by our organic drilling program and primarily due to new wells in the Karnes area.

• Adjusted EBITDAX was $183.4 million during the third quarter of 2019, with capital expenditures for drilling and completions of $88.4 million for the period. D&C capital represented 48 percent of our adjusted EBITDAX and slightly better than expectations.

• Our average realized oil price was $59.05 per barrel for the third quarter of 2019, or 105 percent of the average NYMEX WTI benchmark price during the period.

• Total cash operating costs including G&A declined to $9.96 per Boe in the third quarter compared to $10.98 per Boe in the second quarter of 2019.

• Cash on the balance sheet increased to $164.5 million at the end of the third quarter from $96.7 million at the end of the second quarter. In addition, we had an undrawn revolving credit facility with $550.0 million of capacity and $400.0 million of principal debt outstanding.

“We continue to focus on building a business which generates significant free cash flow and our third quarter results further demonstrate our ability to execute on our strategy,” said Magnolia Chairman, President and CEO, Steve Chazen. “While our production grew nearly 10 percent sequentially our capital spending for drilling and completing wells declined to less than half of our operating cash flow during the third quarter. The quality of our assets and disciplined business model positions us to spend within 60 percent of our adjusted EBITDAX for 2019.”

“Using our current methodology, we brought on two new wells in the Giddings Field late in the third quarter. Combined, these two wells produced more than 2,700 Boe per day during their first 30 days on line, which included approximately 1,700 barrels of oil per day and 6,400 Mcf per day of natural gas. These wells are currently producing about 2,900 Boe per day, including more than 1,800 barrels per day of oil and approximately 6,700 Mcf per day of gas. We plan to complete three additional wells in Giddings later in the fourth quarter as part of our ongoing appraisal program.”

Operational Update

Production averaged 71.3 Mboe/d during the third quarter of 2019, a nearly 10 percent sequential increase and ahead of our expectations. Total oil production averaged 53.7 percent of our overall volumes and at the higher end of guidance range. Production in the Karnes area averaged 49.2 Mboe/d during the third quarter, a 12.3 percent sequential increase from second quarter levels of 43.8 Mboe/d, due to the combination of new operated and non-operated wells coming on line. Production from Giddings and Other increased to 22.1 Mboe/d in the third quarter from 21.3 Mboe/d in the prior quarter, 85 percent of which was from the Giddings Field.

We continue to operate one rig in each of our Karnes area and Giddings assets, as well as using one completion crew between our assets to optimize efficiencies. In our Karnes area, we added 430 net acres during the quarter, bringing our acreage position to 21,946 net acres. Our appraisal program in Giddings remains ongoing and we continue to make meaningful progress toward better understanding this sizeable asset. While we have had good recent success implementing our current methodology in Giddings, we are still pursuing an appraisal program which by its nature is inherently higher risk.

Cash Flow

Our cash flow from operating activities was $179.2 million during the third quarter and we ended the period with $164.5 million of cash on the balance sheet compared to $96.7 million at the end of the prior quarter. Total cash outlays related to our capital program including drilling, completions and leasehold acquisitions were $97.6 million, including $1.3 million of cash spent acquiring oil and gas properties.

Updated Guidance

We expect our fourth quarter production to be similar as compared to third quarter volume levels. Total capital spending for drilling and completions is expected to decline slightly in the fourth quarter, and in keeping with our business model. As our overall well completions will be weighted more towards Giddings, we expect production in Giddings to increase about 10 percent sequentially during the fourth quarter.

Quarterly Report on Form 10-Q

Magnolia's financial statements and related footnotes will be available in its Quarterly Report on Form 10-Q for the three months ended September 30, 2019, which is expected to be filed with the U.S. Securities and Exchange Commission ("SEC") on November 5, 2019.

Conference Call and Webcast

Magnolia will host an investor conference call on Tuesday, November 5, 2019 at 10:00 a.m. Central (11:00 a.m. Eastern) to discuss these operating and financial results. Interested parties may join the webcast by visiting Magnolia's website at www.magnoliaoilgas.com/investors/events-and-presentations and clicking on the webcast link or by dialing 1-844-701-1059. A replay of the webcast will be posted on Magnolia's website following completion of the call.

About Magnolia Oil & Gas Corporation

Magnolia (MGY) is a publicly traded oil and gas exploration and production company with operations primarily in South Texas in the core of the Eagle Ford Shale and Austin Chalk formations. Magnolia focuses on generating value for shareholders through steady production growth, strong pre-tax margins, and free cash flow. For more information, visit www.magnoliaoilgas.com.

Cautionary Note Regarding Forward-Looking Statements

The information in this press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of present or historical fact included in this press release, regarding Magnolia’s strategy, future operations, financial position, estimated revenues, and losses, projected costs, prospects, plans and objectives of management are forward looking statements. When used in this press release, the words could, should, will, may, believe, anticipate, intend, estimate, expect, project, the negative of such terms and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. Except as otherwise required by applicable law, Magnolia disclaims any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this press release. Magnolia cautions you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of Magnolia, incident to the development, production, gathering and sale of oil, natural gas and natural gas liquids. In addition, Magnolia cautions you that the forward looking statements contained in this press release are subject to the following factors: (i) the outcome of any legal proceedings that may be instituted against Magnolia; (ii) Magnolia’s ability to realize the anticipated benefits of its business combination, which may be affected by, among other things, competition and the ability of Magnolia to grow and manage growth profitably; (iii) changes in applicable laws or regulations; and (iv) the possibility that Magnolia may be adversely affected by other economic, business, and/or competitive factors. Should one or more of the risks or uncertainties described in this press release occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements. Additional information concerning these and other factors that may impact the operations and projections discussed herein can be found in Magnolia’s filings with the SEC, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Magnolia’s SEC filings are available publicly on the SEC’s website at www.sec.gov.

Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures

Reconciliation of net income to adjusted EBITDAX

In this press release, we refer to adjusted EBITDAX, a supplemental non-GAAP financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. We define adjusted EBITDAX as net income before interest expense, income taxes, depreciation, depletion and amortization, amortization of intangible assets, accretion of asset retirement obligations, non-cash stock based compensation expense, exploration costs, and certain transaction costs. Adjusted EBITDAX is not a measure of net income in accordance with GAAP.

Our management believes that adjusted EBITDAX is useful because it allows them to more effectively evaluate our operating performance and compare the results of our operations from period to period and against our peers without regard to our financing methods or capital structure. We also believe that securities analysts, investors and other interested parties may use adjusted EBITDAX in the evaluation of our Company. We exclude the items listed above from net income in arriving at adjusted EBITDAX because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDAX should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as an indicator of our operating performance or liquidity. Certain items excluded from adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of adjusted EBITDAX. Our presentation of adjusted EBITDAX should not be construed as an inference that our results will be unaffected by unusual or non-recurring items. Our computations of adjusted EBITDAX may not be comparable to other similarly titled measures of other companies.

The following table presents a reconciliation of net income to adjusted EBITDAX, our most directly comparable financial measure calculated and presented in accordance with GAAP:

Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures

Reconciliation of net income attributable to Class A Common Stock to adjusted earnings

Our presentation of adjusted earnings and adjusted earnings per share are non-GAAP measures because they exclude the effect of certain items included in Income Attributable to Class A Common Stock. Management uses adjusted earnings and adjusted earnings per share to evaluate our operating and financial performance because it eliminates the impact of certain items that management does not consider to be representative of the Company’s on-going business operations. As a performance measure, adjusted earnings may be useful to investors in facilitating comparisons to others in the Company’s industry because certain items can vary substantially in the oil and gas industry from company to company depending upon accounting methods, book value of assets, and capital structure, among other factors. Management believes excluding these items facilitates investors and analysts in evaluating and comparing the underlying operating and financial performance of our business from period to period by eliminating differences caused by the existence and timing of certain expense and income items that would not otherwise be apparent on a GAAP basis. However, our presentation of adjusted earnings and adjusted earnings per share may not be comparable to similar measures of other companies in our industry.

Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures

Reconciliation of net income to adjusted net income

Our presentation of adjusted net income is a non-GAAP measures because it excludes the effect of certain items included in Net Income and adjusts for income taxes assuming the exchange of all outstanding Magnolia LLC Units and corresponding Class B Common Stock for shares of Class A Common Stock. Management uses adjusted net income to evaluate our operating and financial performance because it eliminates the impact of certain items that management does not consider to be representative of the Company’s on-going business operations. As a performance measure, adjusted net income may be useful to investors in facilitating comparisons to others in the Company’s industry because certain items can vary substantially in the oil and gas industry from company to company depending upon accounting methods, book value of assets, and capital structure, among other factors. Management believes adjusting these items facilitates investors and analysts in evaluating and comparing the underlying operating and financial performance of our business from period to period by eliminating differences caused by the existence and timing of certain expense and income items that would not otherwise be apparent on a GAAP basis. However, our presentation of adjusted net income may not be comparable to similar measures of other companies in our industry.

Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures

Reconciliation of operating margin to adjusted operating margin

Our presentation of adjusted operating margin and total cash operating costs are supplemental non-GAAP financial measures that are used by management. Total cash operating costs exclude stock based compensation expense because it is non-cash in nature. We define adjusted operating margin per Boe as total revenues per Boe less operating expenses per Boe adjusted for certain unusual or non-recurring items per Boe that management does not consider to be representative of the Company's on-going business operations. Management believes that total cash operating costs per Boe and adjusted operating margin per Boe provide relevant and useful information, which is used by our management in assessing the Company’s profitability and comparability of results to our peers.

As a performance measure, total cash operating costs and adjusted operating margin may be useful to investors in facilitating comparisons to others in the Company’s industry because certain items can vary substantially in the oil and gas industry from company to company depending upon accounting methods, book value of assets, and capital structure, among other factors. Management believes excluding these items facilitates investors and analysts in evaluating and comparing the underlying operating and financial performance of our business from period to period by eliminating differences caused by the existence and timing of certain expense and income items that would not otherwise be apparent on a GAAP basis. However, our presentation of adjusted operating margin and adjusted operating margin per Boe may not be comparable to similar measures of other companies in our industry.

Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures

Reconciliation of net cash provided by operating activities to cash flows from operations before changes in operating assets and liabilities

Cash flows from operations before changes in operating assets and liabilities is a non-GAAP financial measure. Management believes it is useful for investors and widely accepted by those following the oil and gas industry as a financial indicator of a company’s ability to generate cash to internally fund drilling and completion activities, fund acquisitions, and service debt. It is also used by research analysts to value and compare oil and gas exploration and production companies and is frequently included in published research when providing investment recommendations. Cash flows from operations before changes in operating assets and liabilities, therefore, is an additional measure of liquidity but is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing, or financing activities.

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