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Magnolia Oil & Gas(MGY) - 2024 Q3 - Earnings Call Transcript
MGYMagnolia Oil & Gas(MGY)2024-10-31 21:43
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Financial Data and Key Metrics Changes - Magnolia Oil & Gas reported total net income of 106millionandadjustednetincomeof106 million and adjusted net income of 100 million, equating to 0.51perdilutedshareforQ32024[24]−AdjustedEBITDAXforthequarterwas0.51 per diluted share for Q3 2024 [24] - Adjusted EBITDAX for the quarter was 244 million, with total capital associated with drilling and completions at 103million,representingjust42103 million, representing just 42% of adjusted EBITDAX [24] - Total production volumes grew 10% year-over-year to 90,700 barrels of oil equivalent per day, with a diluted share count decreasing by 5% year-over-year to 198.4 million shares [25] Business Line Data and Key Metrics Changes - Total company production during Q3 was approximately 91,000 barrels of oil equivalent per day, with oil production nearly 39,000 barrels per day, reflecting an 18% increase from the previous year [12][13] - Production in the Giddings area was 68,700 barrels of oil equivalent per day, growing 12% year-over-year, with Giddings oil production increasing by 24% [13] - Field level operating costs were reduced to 5.33 per BOE, an 11% decline compared to Q1 2024, exceeding the target of a 5% to 10% reduction [16] Market Data and Key Metrics Changes - The company experienced unplanned third-party midstream facility outages that impacted natural gas and NGL production by approximately 1,000 BOE per day during the quarter [12] - Oil price differentials are anticipated to be approximately a 3perbarreldiscounttoMagellanEastHouston,withMagnoliaremainingcompletelyunhedgedforalloilandnaturalgasproduction[33]CompanyStrategyandDevelopmentDirection−Magnoliaaimstobethemostefficientoperatorofbest−in−classoilandgasassets,focusingongeneratinghighreturnswhileemployingminimalcapitalfordrillingandcompletingwells[7]−Thecompanyplanstoutilizeexcesscashforattractivebolt−onacquisitionstoenhanceoverallbusinesssustainabilityandincreasedividendpayoutcapacity[8][10]−Thestrategyincludesreturningasubstantialportionoffreecashflowtoshareholdersthroughdividendsandsharerepurchases[18][19]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementexpressedconfidenceinthecontinuedexecutionofthe2024planandhighlightedstrongoperationalperformancedespitechallenges[6][11]−Thecompanyanticipateshighsingle−digityear−over−yeartotalproductiongrowthfor2024,withoilproductionexpectedtoexceedBOEgrowth[14][33]−Managementacknowledgedconcernsaboutreliabilityrelatedtopowerandmidstreamfacilitiesbutremainsoptimisticaboutoperationalflexibilitymovinginto2025[41][72]OtherImportantInformation−Magnoliacompletedseveralsmalltransactionstotaling3 per barrel discount to Magellan East Houston, with Magnolia remaining completely unhedged for all oil and natural gas production [33] Company Strategy and Development Direction - Magnolia aims to be the most efficient operator of best-in-class oil and gas assets, focusing on generating high returns while employing minimal capital for drilling and completing wells [7] - The company plans to utilize excess cash for attractive bolt-on acquisitions to enhance overall business sustainability and increase dividend payout capacity [8][10] - The strategy includes returning a substantial portion of free cash flow to shareholders through dividends and share repurchases [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the continued execution of the 2024 plan and highlighted strong operational performance despite challenges [6][11] - The company anticipates high single-digit year-over-year total production growth for 2024, with oil production expected to exceed BOE growth [14][33] - Management acknowledged concerns about reliability related to power and midstream facilities but remains optimistic about operational flexibility moving into 2025 [41][72] Other Important Information - Magnolia completed several small transactions totaling 15 million during Q3, enhancing future development locations [20] - The company ended the quarter with 276millionincashand276 million in cash and 400 million in senior notes, indicating a strong balance sheet [30] Q&A Session Summary Question: Continued growth in Giddings area - Management attributed growth to a talented team and ongoing learning from drilling activities, emphasizing the importance of acquisitions to expand knowledge [36][39] Question: Concerns about midstream outages - Management acknowledged the unpredictability of midstream providers and expressed concerns about power reliability but noted that current issues have been resolved [41][72] Question: LOE and GP&T cost trends for 2025 - Management indicated that while they aim to maintain current cost levels, they expect modest improvements and will continue to push for efficiency [46][47] Question: Service costs alignment with oil and gas commodities - Management noted that service costs have softened and they anticipate mid-single-digit savings in various categories moving into 2025 [50][53] Question: M&A opportunities in Giddings and Eagle Ford - Management sees a mix of small and larger acquisition opportunities and remains focused on enhancing the quality of their asset portfolio [66][68] Question: Philosophy on hedging - Management prefers to remain unhedged to allow full exposure to commodity prices, viewing hedging as unnecessary given their low debt levels [74][76] Question: Future challenges with midstream facilities - Management expressed confidence in resolving current midstream challenges but acknowledged the potential for future issues related to power and infrastructure [72][78]