Magnolia Oil & Gas today announced its financial and operational results for the fourth quarter and full year 2022.

President and CEO Chris Stavros, commented:
“I want to commend our teams for their efforts and recognize their strong contributions which helped support the exceptional financial and operational results for Magnolia in 2022. We achieved new company records in most financial and operational categories including production, operating income margins and earnings per share, while continuing to gain efficiencies at Giddings without sacrificing productivity. We achieved this by executing on our strategy of disciplined capital spending, moderate production growth, generating high pre-tax margins, and improving our per share metrics while maintaining a strong balance sheet. During 2022 we grew our total production volumes by more than 14 percent while spending just 34 percent of our EBITDAX drilling and completing wells.

“Our teams continued focus on managing costs and generating efficiencies in an inflationary service cost environment further enhanced our margins in Giddings and provided significant free cash flow. During the year, we returned 54 percent of our free cash flow to our shareholders in the form of share repurchases and our cash dividend. We repurchased more than 15 million shares in 2022, reducing our diluted share count by 8 percent. In addition, we were able to acquire some acreage, minerals and additional working interests in our Giddings area, primarily outside of our core development area. This further builds on our strong position in the play and is in line with our strategy of incrementally improving our opportunity set and the value of the business. After all our activities, including capital expenditures, bolt-on acquisitions and the significant return of cash to shareholders, we ended the year with a considerable cash balance of $675 million.

“While Magnolia’s unhedged business captured the benefit of much higher product prices last year, this year’s plan will focus on improved execution and generating further efficiencies in order to offset the impact of higher oil field service costs. Operationally, we expect our 2023 plan to be similar to last year. We expect to continue to operate a two-rig drilling program, which we estimate will generate full-year production growth of approximately 10 percent. We will remain disciplined on our D&C capital, continuing to limit our spending to approximately 55 percent of EBITDAX, allowing for significant free cash flow. Our efforts will continue to focus on improving the overall business while taking actions to increase our dividend per share payout capacity. These activities include moderate growth in our total production, repurchasing at least 1 percent of our outstanding shares per quarter, and the pursuit of small, accretive bolt-on oil and gas property acquisitions. These efforts are expected to support annual dividend growth of approximately 10 percent over time, which is an important component of Magnolia’s total shareholder return proposition.”

Operational Update

Fourth quarter 2022 total company production averaged 73.8 Mboe/d, representing a 6% increase over the prior year period. Giddings and Other production increased 20% and oil production increased 26% over the prior year’s fourth quarter. As previously communicated, fourth quarter 2022 production volumes were negatively affected by freezing temperatures, which impacted both Karnes and Giddings assets during late December and a single large pad that was brought online later than expected. Operations have fully resumed to expected levels and performance at the large 8-well pad is better than expected. Magnolia added a mix of acreage, mineral and working interests to the Giddings area during the fourth quarter, most of which was outside of their core development area. These targeted acreage acquisitions were partly a result of our ongoing appraisal work with a goal of identifying new and promising areas throughout the Giddings field. The company's appraisal efforts should enhance development opportunities over time. Magnolia plans to continue to pursue small bolt-on oil and gas property opportunities in and around their operated assets that the company expect will add future value to the enterprise.

Magnolia continues to operate two drilling rigs and one completion crew and expects to maintain this level of activity throughout the year. One rig will continue to drill multi-well development pads in our Giddings area. The second rig will drill a mix of wells in both the Karnes and Giddings areas, including some appraisal wells at Giddings. For 2023 in Giddings, Magnolia currently expect to average approximately 4 wells per pad with average lateral lengths of approximately 8,000 feet.

2022 Oil and Gas Reserves

Total 2022 proved reserves increased 16% to 157.0 MMboe from 135.4 MMboe at year end 2021 and replaced 179%(1) of 2022 production. Magnolia books only one year of proved undeveloped reserves and as a result 80% of its 2022 proved reserves were developed. The proved undeveloped reserves represent what we plan to convert to proved developed during 2023.

(1) Calculated as the sum of the 2022 change in total proved reserves of 21.6 MMboe and 2022 production of 27.5 MMboe divided by 2022 production.

Additional Guidance

Based on their operated activity of a 2-rig drilling plan for full-year 2023, Magnolia estimate their total D&C capital to be between $490 to $520 million, which includes an estimate of non-operated capital that are currently expected to be similar to 2022 levels. With this level of activity, Magnolia expect to deliver full-year 2023 production growth of 10 percent, with most of the growth expected to come from the development program at their Giddings field asset.

Magnolia expect the first quarter of 2023 to be their heaviest period of D&C capital expenditures during the year, and in the range of $140 to $150 million. Total production for the first quarter is estimated to be approximately 80 to 82 Mboe/d. Oil price differentials are anticipated to be approximately a $3 per barrel discount to Magellan East Houston and Magnolia remains completely unhedged for all its oil and natural gas production. The fully diluted share count for the first quarter of 2023 is expected to be approximately 214 million shares, which is 6 percent lower than first quarter 2022 levels.

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