MGY - Earnings call transcript Q3 2018 | Magnolia Oil & Gas Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Brian Corales

Good morning, everyone. Welcome to Magnolia Oil & Gas' Third Quarter 2018 Earnings and Inaugural Conference Call. Participating on the call today are Steve Chazen, Magnolia's Chairman, President and Chief Executive Officer; and Chris Stavros, Executive Vice President and Chief Financial Officer.

As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements.

factors the cause with company's risk is to the on in available proxy information that results could differ SEC. Additional statement filed X slide safe the data full harbor be website. on A can on our conference with presentation Slide call the supplemental found of

the Chazen. of now download as Steve the to at I third will company's the as Magnolia's from call Mr. slides can XXXX earnings website call You release the turn over press quarter well conference Investor section www.magnoliaoilgas.com.

Steve Chazen

Thank like call -- earnings that my seems to you. ended call I is able age given was Well, do I yesterday just XX Occi, my unlikely -- XXrd be current here. I'll at

the set which complicated to traded decade. useful, the think, originally is both and and create last talk relative absolutely Gulftex be Literally, the did and this EnerVest transaction periods Giddings investable is S&P remarks, company, pro costs. When had assets So on Karnes statements for we and perform independent fairly to a about to but over within X, understanding forma information in the reference, presented I'll the E&P the XXXX March GAAP to pro by now with that had discuss assets, the that both all more referred the that Magnolia, the in read publicly to to so struggled an results for subsequent I of energy were forma. forma are detail, financial acquired generally my pro sector XXX the to includes excludes financial most will out information. and Chris we assets

to the market to and with generate over long was be the model primary designed business term. stock Our value differentiated objective

to basic of were criteria are far several basic so accustomed set Our would good this delivery to would the slides. a on we're generalist to who as business We've company's presentation the off characteristics model X start to that more industrial to of investors, of model. an appeal and our our Slide we've elements establish certain demonstrate summarized strategy a was There objectives. exceeded on

expect income of million pro was and share for net in net Magnolia's the per year. XXXX $XXX overtime. forma this We quarter months million and X income approximately real generate growing third the a to GAAP earnings of $XX first

generate One high cycle goal operating full to margins. of is and our

of drilling a Magnolia in level of you on generation As annual can X, growth adjusted GAAP organic We and EBITDAX the production margins gross assets this company. on XX% our We we see than achieve on order spend basis, had expect more owned quarter spending to pretax on BOE year. the for of third day deliver to completing growth of to that originally is annual generated period the cash Slide or approximately X,XXX said XX% moderate operating to and in the an XXXX. XX% flow a XX% basis XX% during per production wells of of within plan

this year, level into flow result expectations in And to as recalibrating next that As we growth XXXX. outlook our our in we're any to production for about forward cash event, more our year. spending expected well meaningful have ahead midst is organic In the growth say of is generation. this and move production of we'll of free

on period were this completing of EBITDAX our the of $XXX on year, September Slide XX% capital which that spent wells, shown million pro for of X. ending For months nine forma drilling represented

rig this that organic the in production much only Bear growth running assets. when pro previous mind period during Our production provided third quarter day, is XXXX we're XX%. in County achieved approximately XX,XXX guidance growth and of one BOE our forma a exceeded our of Karnes year-over-year

strong very a leverage. a maintain low amount to balance is strategy of sheet with Our

$XXX of an third half quarter. annual-wise the the the or than quarter, We which facility million credit a pro is our of debt undrawn have revolving of $XXX less of recent approximately the long-term most We've turn at of end the quarter. forma end at million EBITDAX for

we As growth part be achieve moderate gross acquisitions, accretive approximately repurchases of XX% cash cash and used for will needs to our free debt reduction. or required of annual The plan, and free expected beyond our flow cash annual our flow be undesignated flow our production share to targets.

of The quarter, third million assets all X,XXX X.X produced barrels of shares. Corporation the net Texas $XXX Magnolia we XXX,XXX acquisition assets cash the Oil South substantially Gas net Giddings during During our The X,XXX inventory. announced & end our undrilled to and of Harvest of at County approximately position Karnes a to approximately half day locations in the closed first were acres million XXXX Field August. core and transaction the and added

financial evaluate assets. We characteristics to plan, and continue similar bolt-on opportunities existing several that medium-sized business Magnolia's small have acquisition fit operating our to

with of our operated XXXX, remainder drilling quarter acreage rigs the continue third in Field, one the with County across to plan the of the year. level we this Karnes for in a activity rigs Giddings two During rig three and of

quarter third production in Our nonoperated benefited activity. partially related step a from

quarter. day third XX,XXX in Our day production X,XXX saw quarterly a the increase a BOE in Giddings sequential of to BOE per

during the As acquisition. the month production of period completion Harvest several from wells of was all the new one

We in growth of expect further for production result Giddings a the fourth quarter completions. well on see to additional as

off expect very all, to in to XXXX, in terrific the Looking assets have second All what pleased the net quarter so first to our acreage rig year, a with are our opportunities add a of delivered and we and Giddings delineate far. within large appraise in into we're start next position.

significant plan free to our exceed development after generating cash original Our while expectations, continues XXXX flow capital.

is announced had year-to-date transaction at pro ahead we in million EBITDAX when Our of what EnerVest that back original $XXX of we well forma for the a forecast the pace with running March.

value. business prospect help and regarding detail, stock some enhance greater fourth I of and very operating opportunities, deliver quarter Stavros, continue items which we who'll for allow XXXX, the optimistic on provide forward the objectives our we over call Magnolia's into financial third to will should highlights quarter. review to market also us now in As turn Chris look model our and are Chris? our to guidance

Chris Stavros

Thank morning, you, everyone. Steve, and good

to result through recording walk the I'd a corporate you I numbers, of business may financial the talk moment that some Before and a implications for like about combination. notice the as structure of

of while the acquisition, both which our financial the of July GAAP successor. the statements Giddings one refer the or County results include the including Karnes period month of with assets, acquisitions the also of properties the and us values. of prior the include oil U.S. in Field As the on Karnes only were quarter, We XX, to the based financial County their a on the third required of transaction for result results after the acquisition, present as value statements allocate to to requires to the and which the closing EnerVest results predecessor, the we gas to the asset individual as assets market and of fair fair Harvest estimated the

difficult lacked or date. required As prior format a make this periods. to after statements it the compare recognized to We successor comparability July those with presentation predecessor's the that result, that may XX financial on

business. in underlying financial between of additional to try understand try will operational provide periods we possible, and trends wherever two the the the context to order and So you help

includes results Giddings also both been and Karnes information, sometimes assets refer they forma will of to had combined as We the of the as which XXXX. X, pro if the January

X, exclude on the presented, As March items acquisition results but the such Steve XXXX, as included forma been nonrecurring periods had any of results pro that as GulfTex in noted, costs. the occurred also transaction if it include all

means it's and interest for certain structure the This County benefits an that equal structure in assets. sellers of important and A both report consequence this noncontrolling Magnolia that has B is Magnolia with Additionally, upsea of note rights. the associated to to two the classes to The Class B, of voting which have order preserve we tax adopted Karnes income line shared a shares. shares: also

of that with is current and with is investors' the business incurred taxes periods transactions The connection combination. that structure cost million were the onetime in the earnings Magnolia, important an thing $XX.X upsea neutral, the from the generally exception in of standpoint, for

B reported X.X not included they diluted million interest in in shares would shares average We third are dilutive approximately includes with million the count the share an because be noncontrolling which antidilutive. warrants quarter, Our diluted Class of the the XXX of share associated count of effect shares.

our as solidly the for our modeling outstanding, positive A dilutive you should periods noncontrolling including B total net those income. during However, and combined effect interest Class of and income, of shares well purposes, warrants of as use Class the full EPS

Class the our to that tranche be XXX County we we today. A Looking met share ahead outstanding, reflected B earnout Karnes consideration, Class the shares for XX-Q of on our be the later final which so of expect filed face the quarter, and and is approximately million will fourth counts third

Moving ending for approximately the average for period and of Earnings $XX.XX a period basis $XX.X noncontrolling price numbers. month the the as or third million per realizations on of were to XX. pro revenue million $XX associated on Overall, reported nonrecurring oil quarter. payment $XX company's on price interest by GAAP basis a million with share X.X realizations successor per XXX% lieu the million affected on for of waterborne the quarter. of $XXX.X to totaled onetime quarter an realizations realized benefited basis period September net seismic a period. income certain on related third from payment a EnerVest in or month the $X.XX two-month Revenues the license loss combination, to that the a The thresholds purchase LLS the early strong including as forma WTI million based to pro the $XX.XX Net income our transaction a barrel on successor number contingent during earnout for oil $XXX.X including successor net such, million for was are XX.X and costs the successor third liability XXXX. of were for two Magnolia for payable XXXX. two our diluted of indexed settlement cash associated and a period as in charges, of the million were prices relative forma the million business made revenue $X.X successor was with

quarter field highlight for side. Turning our Unit cost the efficiencies. to costs the

reserves. This acquisition million company unit expense per Slide were For as in conference due fall the LOE of was of per company, $X.XX the of and The continues we in assets. of would the of million Exploration cost our G&A a professional as modeling of Harvest focused $X.XX additional using gradually plan per expect some and our for license new higher X and for that development. the as the at representative was grow. would slides the these pro during are reflects onetime to subside came lower-than-expected the as or for the of XX%. per forma a the production basis online effective the development quarter. as G&A PUD successor $X.XX the BOE per we be are period rate the a period period. approximately wells for on costs metrics as purposes the successor a BOE $XX.X And expenses operations third near-term for $XX accounting on fees. costs recommend time -- well our We BOE would $XX.X call to XXXX successor G&A purchase X-month period fees BOE and to costs are in In brought tax successor focus reflects per largely to acquisition over the the million. basis per quarter expect normal were for on the exploration purpose to successor and cost result and for expense these Magnolia's modeling, current service lower as related for our of period. in future, the shown would of to BOE seismic period DD&A successor third the of than $XX.XX

range paid the $XX on an spent and $XX just I was Slide the quarter sheet other of period the cash was Harvest for long-term the settlement a the quarter quarter shown third and of was cash $XXX for million $XXX million approximately on mentioned. interest. with acquisitions noncontrolling $XXX ended facility A was undrawn an XX% of in of during wells as $XX XX At earnout of On the and which We to well with third ended the the our within remain of can We to on million obligation. with The seismic cash and the we million and XXXX. September acquisition during third $XXX of spent leasehold the approximately within the pro $XXX form balance we due nine-month Magnolia, revolving credit the $X another business capacity the XX% license combination, forma rate on be our to quarter Capital million debt million outlays drilling adjusted XX% close accounting period treatment a as Slide ended the objective on summary spending during seen balance sheet EBITDAX of inclusive the of cash early third flow. EnerVest tax for of $XXX million. of million million effective our million consideration hand. million on cash completing quarter. XX% in expect the basis, had X, We to on for XX. $XXX and We

As year from the for our completion acquisition as per BOE from XX,XXX the non-operated drilling release, BOE activity. third the program in per our the to production full noted XX,XXX in of higher due day the we increased well as we press better-than-expected Harvest day results quarter, to previously guidance

expect sequential to the expected in BOE additional quarter. XX,XXX improvement our remainder with the expected expected guidance also and turned for day we in line turned see approximately of per Turning primarily completed the of solid to quarter due of from is quarter wells during Giddings are to BOE in sequentially production and during period acquisition as the grow growth wells production fourth year, due day to to a fourth the XX,XXX average additional to be partly is total full capture per Harvest line. The

our in XX% full to continue that our We range guidance. to of XX% and capital EBITDAX will with of in XXXX expect earlier our the total year be line

complete We XXXX. to expect and drill base net during wells to XX approximately our asset

on line spending we and the prices natural a Giddings of will XX% basis XXXX, roughly with in by take in that change position. affect in XX% for currently our capital earnings continuing dollar an Product early oil price effort our mentioned, at model. $X ready per to year and Steve an net further range before annualized business with prices. and a our into basis the X expect large rigs and for changes to $X.XX on appraise income questions. adding in run We're Looking acreage our be total rig We X per EBITDAX our an of to and in taxes plan annualized second current million every to of Karnes, every prices, year, barrel $XX in as total for rigs MCF gas your change next now year the in million in

Operator

[Operator from comes from Instructions] of line Dingmann Our first question Neal the SunTrust.

Neal Dingmann

Giddings when start Could there Steve about Field. initially the the be in both or year? least about add where off rigs will focus question maybe at really my just you is second for believe you Chris, talk to rig next or the that talk you you

Steve Chazen

No.

be the right so not northeast to areas, -- probably second With northwest to looking it especially, rig at probably now. drilled be corner far necessarily what some in south see there try we'll our the in of where the might -- and that then in some different we've

the in for viewed is still days come development should progresses. next early in, planning we'll this, the -- around still mode As probably that really rig the the year and so move as that think in results year. flexible we're I as be of our and It's

Neal Dingmann

I the great many guys use, anything on been have size lastly, things the on could just potentially? add, behind acquisitions then you And timing and know bolt-on just you Okay.

Steve Chazen

look Well, at of lot stuff. we a

we we but large these just small, they're So in many And expect very either. -- we in private some deals. and quarter, deals we're don't of there'll -- be this probably large public interested fairly not not

probably more from modest were want maybe quarter. in quarter people that. There's volatility that in currently experiencing So growth first be to nervous. extent, I some as will the describe some to acquisitions we're setup And that to you would -- get the it, fourth or enjoying makes in there more to more likely however accept that respond and

Operator

you. Thank

comes of the question Campbell next Our from Brothers. Tuohy Jeffrey from line

live. now You’re

Jeffrey Campbell

well, disclose precedes disclose Giddings due increased working record average interest the yes, Can Can how you acquisition? -- Harvest you your you itself. much to

Steve Chazen

I think it's about XX%, XX percentage points.

Jeffrey Campbell

And going program self-funding it to next the Giddings you're Giddings be still two-rig year. that was add program? in Will a mentioned rig first quarter with

Steve Chazen

be -- probably won't be XXX%. a probably won't XX%, But to Yes. it XX%, it it'll closer

at So XX%, cash continue work we'll around guess. to probably of the Giddings Karnes all Giddings I probably sort and flow from will use would

Jeffrey Campbell

ask could it Are see what's don't on hedging currently the I if forward? to one, approach your hedging And and I because you production last going one presentation. any

Steve Chazen

we buy predicting we prices No. track to I and are we had that's but the can oil I insurance, so would only if gas you, My had in If prove would that and to, -- hedge. reason record to. pretty crummy, and

that protect is predict hedging who folks you you So sheet actually you to to we're money capital assume it. need balance need when on your hedge do the products and designed good to or you need idea sell that. to, the I make program your

So enriching Goldman not business -- really the I in just Sachs. of I'm

Operator

you. Thank

question Capital. Our Haas of the line Irene from comes from next Imperial

now You’re live.

Irene Haas

how and quite service along? color expect on was I probably you strong a noticing Because is quarter? in COO? that? bring in-house still your you coming your was next us that EnerVest same a team, trend this secondarily, that would you we quarter. contract with Should when give the staffing NGL pricing Could little Then has

Steve Chazen

we hired reporting And person. So last Well, weeks refiled because an we ago. announced, actually who we hired was our executive operating a few Millican, he's Steve executive operating

we bought He was ran So at stuff the essentially. he their EnerVest. south,

hurry have we're changes. no reason EnerVest for it reasonable Right operating person. at all. real that at an cost. people in a And unless So great job there's are to change doing And now, no the us we

As good, far for it's to want a $X of NGL strong. seems has change price And quarter. there's think day. pretty going is percentage the running It's decline been up this the probably barrel as pricing to reason a no NGL WTI it's of percentage as goes, to to pricing WTI, its been a

Irene Haas

looking also gas pretty prices good. And Right.

So to enjoy that you well? as positioned guys be should

Steve Chazen

gas. Yes. day And we XX roughly produce about a million nearly in

change $X So basically. it at was

think speaking, So $XX,XXX day I a roughly bad. not that so

Operator

next Markets. Northland of Jeff Our the Capital line comes Grampp from from question

now You are live.

Jeff Grampp

you Giddings, been that bit on recent a few wells of batch can this have maybe you maybe guys And over little announced Sticking how how recently the earlier has performing? guys from the first some wells touch longer those performances term been of on the some completed, of year? how maybe you've that

Steve Chazen

think we'll line was our have wells the not the when that we we of said a offering. of in to this started so still file provide there's I because performing speaking, one been disclosed with we goals generally to. ones But have the acreage lot and when open detail we in

been X,XXX some there's small -- lot clearly, a barrels of we making been it had a making these oil, a are for well X decline So months. wells that's but day of

little wells. mean, we we generally But wells, we perfect pleasantly we've to able good, But enough surprised. have will. sure enough as I'm and pretty be others, wells but there. file file things we bad the some speaking, are a to Obviously, I time, there's not better it's see them. So you'll We'll that when really drilled haven't given been it's than but

Jeff Grampp

frac it Giddings, 'XX look to that each the rig as support is that you in crew back of need bounce you of guys in crew would or operating activities kind a each you into Or look do added guys forth of... here 'XX area? would and keep curious one and kind the with in I'm

Steve Chazen

of probably be We'll might going the up we sort it's a mode. we because little than other wells Unless going one-off crew. Giddings, than development the rather pick to single keep in have the some slower development is the to wells wells, -- drilling

a you lumpier ought to some able production a turn maybe numbers, you do single a might we you're it's so up. going get makes And the it's with a But a watching you confusing. it, like, sudden all little make little because and and than along be It know all we you of to sudden big think quarterly of on wells a run crew.

Jeff Grampp

from lot you warrants. do kind I specs one lately that's last some kind of that on then free guys consideration? you a a buyback, which couple way a curious of We've some tender earlier. cash nonenergy And me. if was roundabout a of referenced it's offers Obviously, just seen any And have of of given and generating

I to was of get to kind So the transactional curious your related thoughts some just of thing on warrants. sort

Steve Chazen

the view Yes. value. having warrants exceptional We as

can I probably all we it. think that's say about

Operator

Our next from comes question Michael of Securities. line from the McAllister MUFG

live. now are You

Michael McAllister

all. Well... Welcome back to

Steve Chazen

about I about out that. get the in still don't know I'm of future. this I how can thinking

Michael McAllister

close deal? could, was the What was production of Harvest you -- the if what at

Steve Chazen

same the almost it the we I as the Giddings, About was was towards is as production heavily now. said. what think. entirely Same It Giddings,

And can Giddings is. see you the so production where

we said because mirror pretty are little what in the are beginning it'll for on locations little growth it's when closed, that's outlook to of better. Giddings. our close better the -- average a Maybe it because locations some the about So for

Michael McAllister

the core two getting bigger, with outside in about And going thought what acquisitions? areas of the Okay. of

Steve Chazen

said model. the you have don't what that we business to think I time Well, to question is over fit

DD&A, once price but it's the noncash. work, it's to price because price calculation. so the EBIT It I year, high implies high -- to lot of A So XX%, a count cash XX% And take charge grow a a was make that purchase ignored the the XX% operating now that of XX% would people cash, XX%, quality because would part EBIT to the a purchase margins, noncash take reservoir. of as purchase business it margins. in flow XX% reduction considerable

looking would could about I exceptional value we didn't going for spent think it. that, but cautious a just an year we out, find that if So we're find consider we and

not imminent. it's there might think So be probably something, but I

Operator

from Our line question Capital. the from Evans of next Instructions] Joe [Operator SG comes

live. now are You

Joe Evans

It's Evans. curious... just was I John

Steve Chazen

doesn't No, work in thing the us. the guy he for has --

Joe Evans

Yes, known know. was letting honest. and I you just

was gas building And Just maybe extra you about thinking from understand a from could you stock unique have etcetera. EBITDA process to that relative guess, I me company, to buybacks companies this dividends and standpoint, as your of the kind that. do A guys how buying hoping to industrial properties, obviously guys' spending and I that the of or lot towards you're help generalist just opposed you oil standpoint. I'm more understand thought curious go overtime

Steve Chazen

Okay.

and if business So you properties that the the oil gas, can buy oil and fit gas model.

Let's can these aggregate doesn't then organic generate you that's dilute EBIT, it, just acquisition, EBIT Good it say, earn XX% good with a under you growth us. that. of we do XX% go an of the have a non-dilutive cash, and growth out XX%,

you happiness get there'll the opportunities to away. oil in think more goes you industry be do If would eventually, -- the that and

not shares. we anyway, don't -- And float dividends both. we'll either there's so the We're can't or once -- any to now to do repurchases not that turn we any wouldn't share market buy in to open so then plan attention anymore, or you hardly go to our

so, I'm has are prices. EnerVest but sure shares So at -- sellers and there current obviously not

historically value it's and been bias my the think I neutral it's be if repurchase would -- what count. matter -- a where The to time. for dividends. the at So Easier dividends, just you bias, the between share

Joe Evans

you accretive that you these opportunity make year think of bolt-on to go next acquisitions? a just crude, as then gives question. Within in that some better follow-up we've this And into do you slide tumultuous seen

Steve Chazen

when I frightened, greedy, It's everyone everyone hope we is complacent, old so. and the we're when off. about dose line is

the speaking, get sure. frightened people have and more environment a environment, in up, for everybody's frightened. opportunities, generally be we so don't a So In to buoyant all more where probably set volatile we happy, less company

Operator

Ladies for to no the to have to we in time. turn I'd this questions closing. floor further and gentlemen, at management back queue like

Steve Chazen

all. today. Thank time you your Appreciate

Operator

you, does for and Thank conclude today. gentlemen. ladies This teleconference our

now you at your line participation, disconnect a this may your wonderful time. and have day. You for Thank

Magnolia Oil & Gas (MGY) 14 Nov 182018 Q3 Earnings call transcript