Magnolia Oil & Gas Corporation Announces Fourth Quarter and 2019 Year-End Results

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

2019 Accomplishments:

• Total drilling and completions ("D&C") capital for 2019 was 60 percent of our adjusted EBITDAX, and in line with our business model which prioritizes free cash flow.
• Generated $647.6 million net cash provided by operating activities and $222.9 million of free cash flow(1) during 2019.
• Exited 2019 with total production growth of 10 percent compared to prior year levels.
• Completed bolt-on oil and gas property acquisitions of $135.7 million including 5,200 net acres further supplementing our existing core position in the Karnes County area.
• Repurchased 7 million Magnolia shares for $79.4 million.
• Increased our cash position at year end 2019 to $183 million from $136 million in the prior year, without incurring any additional debt.
• Completed the exchange of all our outstanding public warrants which simplified our capital structure.
• Further de-risked the Giddings Field asset through our appraisal and exploration program, improving our confidence and positioning us to increase activity later this year.
• We replaced 142 percent of our production by adding 34.7 MMboe of total proved developed reserves, the vast majority of which were organic.

Fourth Quarter and Full Year 2019 Summary Financial Results:

Fourth Quarter and Full Year 2019 Highlights:

• Magnolia reported fourth quarter net income attributable to Class A Common Stock of $8.1 million, or $0.05 per diluted share. Total adjusted net income including noncontrolling interest was $12.5 million, or $0.05 per adjusted diluted share.

• Fourth quarter 2019 production averaged 68.3 thousand barrels of oil equivalent per day ("Mboe/d"), and 66.8 Mboe/d for full year 2019. Fourth quarter production increased by 10 percent compared to prior year levels. Oil production averaged 52 percent of total volumes for the fourth quarter and 53 percent for all of 2019.

• Adjusted EBITDAX for full year 2019 was $696.0 million with D&C capital representing 60 percent of adjusted EBITDAX, in line with our business model. Adjusted EBITDAX was $170.8 million during the fourth quarter of 2019. D&C capital during the fourth quarter of $72.2 million represented just 42 percent of our adjusted EBITDAX and better than our earlier guidance.

• Total cash operating costs including G&A were $9.80 per boe in the fourth quarter of 2019 representing a 10 percent decline compared to $10.92 per boe in the prior year period.

• We repurchased 6 million shares of Class B Common Stock for $69.1 million in the fourth quarter. During 2019 we repurchased a total of 7 million shares for $79.4 million.

• Cash on the balance sheet increased by $18.1 million during the quarter, ending 2019 with $182.6 million. In addition, we have an undrawn revolving credit facility with $550.0 million of capacity and liquidity of $732.6 million.

“Magnolia had numerous accomplishments during our first full calendar year as a public company, and we are well positioned both financially and operationally as we enter 2020,” said Magnolia Chairman, President and CEO, Steve Chazen. “Despite the current challenging product price environment, our founding principles remain unchanged as we continue to prioritize significant free cash flow generation combined with moderate growth in our business. During 2019, we spent approximately 60 percent of our cash flow on drilling and completing wells, while growing our production 10 percent from the end of last year. Our business model continues to focus on generating free cash flow which provides us with options to allocate capital toward opportunities that are most accretive to the value of our stock. The majority of last year’s free cash flow was used for small, bolt-on oil and gas property acquisitions that both strengthened our business and increased our core Karnes area acreage position by about 30 percent. We also repurchased 7 million shares of Magnolia stock and ended 2019 with $47 million more cash than at the end of the prior year.”

“A significant achievement during the past year was our improved understanding and predictability of results at our Giddings field asset. The two Giddings wells that we referenced last quarter are still performing quite well. These two wells have averaged more than 1,500 barrels per day of oil production during their first 120 days on line. During the fourth quarter we added another two new wells that have a combined rate of more than 1,100 barrels per day of oil production during their first 60 days of production. As a result of our growing confidence in Giddings, we plan to increase our drilling activity in the field later this year.”

Operational Update

During the second half of 2019, our D&C capital averaged just 45 percent of our adjusted EBITDAX. Total company production averaged 68.3 Mboe/d during the fourth quarter of 2019, a 10 percent increase compared to fourth quarter 2018 levels. Production in the Karnes area averaged 44.9 Mboe/d during the fourth quarter 2019, a 9 percent increase from prior year levels of 41.3 Mboe/d. Production from Giddings and Other increased 13 percent to 23.4 Mboe/d in the most recent quarter compared to year-ago quarterly levels of 20.6 Mboe/d. Oil production in the Giddings area increased 24 percent sequentially as a result of new wells brought online in the latter part of the year.

We continue to operate one rig in each of our Karnes and Giddings assets, as well as continue using one completion crew between our assets. The results of our ongoing appraisal program in Giddings continue to be encouraging, and our confidence and predictability utilizing our existing model continues to improve. Based on these results, our current plan is to shift our rig operating in Karnes to Giddings later this year as we embark on an early stage development drilling plan in the field.

Cash Flow

Our cash flow from operations was $159.0 million and our cash flow from operations before changes in operating assets and liabilities was $162.9 million during the fourth quarter 2019. Total cash outlays related to our capital program including drilling, completions and leasehold acquisitions were $70.2 million and we spent $69.6 million repurchasing our stock. We ended the period with $182.6 million of cash on the balance sheet compared to $164.5 million at the end of the third quarter.

For full year 2019, our cash flows from operations before changes in operating assets and liabilities was $658.0 million. Cash outlays during the year included $435.0 million for drilling, completions and leasehold, cash costs related to oil and gas property acquisitions of $93.2 million and $79.4 million for Magnolia share repurchases. Our cash position at year-end 2019 increased by $46.9 million compared to the end of the prior year.

Updated Guidance

For 2020, we expect to spend approximately 60 percent of our adjusted EBITDAX for drilling and completing wells, which is consistent with our business model. While we anticipate drilling and completing a similar number of wells this year as compared to 2019, improved efficiencies of our drilling program combined with lower oil field service costs should reduce our overall capital outlays by 5 to 10 percent compared to last year. We estimate that this year’s capital and activity program should result in year-over-year total production growth of approximately 5 percent, including growth in Giddings oil production of more than 20 percent.

Based on the pace of our capital spending and estimated non-operated activity, we expect a similar pattern for our quarterly production profile as compared to 2019 - with higher spending and activity levels in the early part of the year, followed by higher production during the second and third quarters. We currently plan to shift our Karnes area rig to Giddings in the latter part of the year to start an early stage development program while continuing with our appraisal efforts.

Capital spending levels are expected to peak in the first quarter and then gradually decline through the remainder of the year. We expect our first quarter 2019 production to average around 65 Mboe/d, as most of the wells turned in line are expected to occur in the latter part of the quarter.

Reserves

Magnolia’s total proved developed reserves at year-end 2019 were 86.8 MMboe, 13 percent higher than the prior year-end period, replacing 142 percent of our total production last year. Our total D&C capital and proved property acquisition costs were $522.8 million during 2019.

Annual Report on Form 10-K

Magnolia's financial statements and related footnotes will be available in its Annual Report on Form 10-K for the year ended December 31, 2019, which is expected to be filed with the U.S. Securities and Exchange Commission ("SEC") on February 26, 2020.

Conference Call and Webcast

Magnolia will host an investor conference call on Thursday, February 20, 2020 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, 2019. Magnolia’s SEC filings are available publicly on the SEC’s website at www.sec.gov.

Magnolia Oil & Gas Corporation
Costs Incurred, Capital Expenditures, and Proved Reserves

The following table summarizes the Company's costs incurred in oil and gas property acquisition, exploration, and development activities and capital expenditures in oil and gas development activities for the year ended December 31, 2019.

The following table summarizes the Company's proved developed reserves and production.

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 and free cash flow

Free cash flow and cash flows from operations before changes in operating assets and liabilities are non-GAAP financial measures. Free cash flow is defined as cash flows from operations before changes in operating assets and liabilities less additions to oil and natural gas properties. Management believes free cash flow and cash flows from operations before changes in operating assets and liabilities are useful for investors and widely accepted by those following the oil and gas industry as financial indicators of a company’s ability to generate cash to internally fund drilling and completion activities, fund acquisitions, and service debt. They are also used by research analysts to value and compare oil and gas exploration and production companies and are frequently included in published research when providing investment recommendations. Free cash flow and cash flows from operations before changes in operating assets and liabilities, therefore, are additional measures of liquidity but are not measures of financial performance under GAAP and should not be considered alternatives to cash flows from operating, investing, or financing activities.

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