Magnolia Oil & Gas(US:MGY)2021-05-09 07:22Financial Data and Key Metrics Changes - Magnolia Oil & Gas reported record earnings of $91 million or $0.37 per diluted share, with adjusted net income of $94 million or $0.38 per diluted share, exceeding consensus estimates [20] - Adjusted EBITDAX was $151 million, with total drilling and completion capital of approximately $39 million, representing just 26% of adjusted EBITDAX [21] - Free cash flow for the first quarter was $100 million, with a cash balance of $178 million at the end of the quarter [11][25] Business Line Data and Key Metrics Changes - Total production grew 3% sequentially to 62.3 thousand barrels of oil equivalent per day, with Giddings production increasing 45% year-over-year and oil production at Giddings up 73% from the prior-year quarter [22][12] - Giddings' production grew 22% sequentially, with well costs averaging about $6 million per well [12][13] Market Data and Key Metrics Changes - Oil price differentials are anticipated to be approximately $3 per barrel discount to MEH during the second quarter [32] - The company expects production to average 66,000 barrels per day in the second quarter, a sequential increase of 6% compared to the first quarter [31] Company Strategy and Development Direction - The business model focuses on disciplined capital spending, limiting capital spending to approximately 60% of EBITDAX to generate mid-single-digit production growth [8] - The company plans to add a second operated rig in the summer to drill wells in both Giddings and Karnes, with a total drilling and completion capital expected to be somewhat less than $300 million for the year [15][29] - Free cash flow will be primarily used for share repurchases and small bolt-on acquisitions, with plans to pay the first semi-annual dividend in the third quarter [18][16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong performance of Giddings, noting that production growth was achieved with lower capital spending due to improved efficiencies [12][18] - The company does not expect to issue new debt and has ample liquidity to execute its strategy, with total liquidity of roughly $630 million [25][26] - Management anticipates a meaningful decline in cash G&A starting in the second half of the year due to the end of the EnerVest contract [37] Other Important Information - The company reduced its diluted share count by 4% from fourth quarter levels and plans to continue repurchasing about 1% of its shares each quarter [17][32] - The transition from EnerVest contract workers to Magnolia employees is expected to enhance operational control and reduce costs [36] Q&A Session Summary Question: Guidance on capital spending for 2022 and balance between production growth and free cash flow generation - Management indicated that capital spending would correlate with production growth expectations, with lower capital needed for lower growth rates [40][41] Question: Insights on Giddings well performance and long-term production - Management noted that the decline rate for Giddings wells is much less than for Karnes wells, indicating strong long-term performance [49][50] Question: Allocation of free cash flow between variable dividends and buybacks - Management stated that as share count decreases, the amount available for dividends will increase, with a focus on buying back shares when they are undervalued [58][59] Question: Expectations for Giddings appraisal program with the second rig - The second rig will be used for pad drilling and exploring new areas, with a focus on maintaining a balance of oil production [72][73] Question: Infrastructure build-out in Giddings - Management is actively working on reducing costs through pipeline infrastructure development, which would generate significant efficiencies [75][76]