MGY - Earnings call transcript Q2 2020 | Magnolia Oil & Gas Corporation

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Operator

Good day, and welcome to the Magnolia Oil & Gas Second Quarter 2020 Earnings Release and Conference Call. [Operator Instructions]. I would now like to turn the conference over to Brian Corales, Vice President of Investor Relations. Please go ahead, sir.

Brian Corales

Thank you, Rocco, and good morning, everyone. & Quarter Oil Call. Earnings Magnolia to Gas' XXXX Second Conference Welcome Vice Financial on Steve Officer; Chief Executive are call and and Magnolia's Stavros, Participating today and Chazen, the Officer. Chairman, President Chris President Chief Executive

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

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

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

Stephen Chazen

during focused thank cash with will has year, will second structure quarter, during activity take cost low the was your - Based focus focus generate current of review business quarter financial EBITDAX further month downturn Good morning, generating product plans approximately year, the second of Chris XX% half in environment. morning price financial comments completion any within using to product dropping activity over market specifically XX% to on time. and just on expect align we product of and May, Giddings our allowing Magnolia's free of XX% our spending He we additional will by rig where year, price before assets remainder of the maintaining some to would wells He then cost our be sharp a questions. adjusted our year. Field. during of XX% our committed decline strategy our spending operated results our our current you keeping to our My which stock XX% capital early today. for the and The we flow. cash actions additional our challenging Despite D&C within leverage earlier made consistent we in progress level will In additional second curtailing and remains prices the EBITDAX. and we the planned efforts of the the remain of running some unchanged, provide spending flow, to the be position. throughout product model good the the us environment of will for solidified an business, our to on continue also this update - Magnolia's including discuss our and and recent rule took value us guidance response this joining prices, capital savings, Karnes and for our we've reduce on awful, to assets. better

February, since we to rig Giddings have in continue Field. completed wells not one we operated run Although any operated

drilling currently early-stage our multi-well a are We pad development area. in

well. initial currently up. to some Karnes keep non-op Our going end we this because the on would year. third obviously. in of completing plan around high we Basically, in currently ducts, the remainder of depend operated the Giddings quarter. is complete any to product $X locations At of not ducts But and the picking in In that area ducts EBITDAX it. of the for ultimate of activity activity our will Karnes the us a We remainder the get during prices the do plan through Karnes of year. of current for of have to level Giddings believe year in We allow the towards prices, gas start at that you're Karnes, of the XX% $XX to in the more pace our spending production product

I presentation. well, your specifically our steady focused a minutes learning years we'll Giddings this program, drill able most well. off This outline appraisal to minute. was a inception several oil through X would the been a asset. not and development good. then establishing in model plus an rig better move XX,XXX least I'd think about well reap next miles of have just our time would that average or approximately core We drilling Through were to and you turn understanding and rather activity exploration the a sometimes our with increase of success. before conference that position acre so a an forming many in gaining to program. another few of year. focused is acreage a spend area X bulk acres, Giddings plenty in attention spread maybe very would of counties we there's of XX,XXX efficient our effort production here months, results talk towards X But ago, the gross intention over Giddings we our a the more of rate on more but of our that to appraisal, about call a price. where designed And at The in of Since like Slide was on on get Magnolia's

currently on oil. typically in production that half these shallower of oil at our least positive they seen total the the results. oil as being day, XXX in wells of of is well. a with with well. a profile stream in days the Giddings oil very months well, XXX a second produced on profiles of Evidence of Slide average well decline strong lower wells Production another core the XX barrels of day day, very peak acreage day XXX the barrels also production XX- horizontal a have can history While equivalent rates At have are and with well XXX-day XXX in production. X,XXX XXX from core there demonstrates producing an produced more oil. of is the areas of where XX this it Results wells X results, different rate and reached our this the nearly the been production well XX-, Wells in X and of and be than are very has Karnes about oil days average how a for XXX,XXX typical shale shown have with position first area these of half equivalent days respectively. well life have have have that's a data we other barrels We - most XX- barrels barrels

average rates. Our most have recent these wells exceeded

this in early-stage on Our all year our drilling area Giddings focused and development with multi-well is activity pads.

average about first average Our $X.X $X well was million. cost year. that an we cost million of multi-well at This below we pad quarter well discussed last that the last experienced

continue $X Our well see experience towards we gain to should as further more acreage. and per well costs drilling efficiencies million the decline on

As drilling X company the X-well an of most that per-foot costs. June, drilling finished in pad example, record wells at recent on our

increased early-stage development from length feet. program, the since well we this average X,XXX have Additionally, has and between about X,XXX started X,XXX feet lateral

improvement this with has to lateral results continue with Giddings of assume total modest early capital cash free our turn the increased. the development, shallower of us recent In our gas pursue in product $XX to the the well and cash if at oil looking flow. drill our Chris allowed our I'll to combined in call at cash flow. growth before strong drop significant The of So summary, we activities our completing now at cost generate stage to has efficiency improve of field. and would The well around begin Giddings XX% we pads average XX% length XXXX, expect in and of here our flow, the prices, in all additional The cash rates - and flow as current driver wells XX% Stavros. development of around our spending lower to end natural and have quarter. should decline well of we the over keep we $X guidance is our maintain costs

Christopher Stavros

everyone. and Thank you, good Steve, morning,

to discount our short-term demand. results, on financial from provide resulted disconnect of which prices in was for $X on some line quarter benchmark largest the we results result of driver a of estimate normal and be cash, impact the second during drop basin has is oil seen position, the our MEH, guidance severe to I evident second decline review realizations in capital, in financial price questions. oil sharp and to and in of which over before short Clearly, turning differentials. a third progress made Steve quarter abated wider This barrel to differentials. points negative than As much our historical benchmark the approximately price the now during quarter realizations our a planned high-level especially prices as May, The some quarter swift oil second time period for mentioned, oil per cost the with we've a review was month it

with the X. of generated quarterly Slide changes second working operations from cash $XXX Looking $XX of capital. at and flow's cash We million before million flow on began in cash the waterfall quarter chart

we a associated incurred resulted cash during the with of million. capital changes, the changes million, for million with $XXX and costs D&C Working balance cash ended the activities, a of quarter capital $XX quarter. were Our including $XX draw in investing approximately

acquisitions gas to to expect any at don't product oil and of quarter. we current property seen first at balance levels our the Assuming build end and complete cash the back we prices,

at Highlighting any reported barrels Giddings, million during sequential guidance our was the X. the declined which day], even X.X% quarter, oil a equivalent XX.X we of period. basis, X.X We did production Turning production production not range. wells of of bring end day] new Slide per our second toward our on higher on of million only the during though to XX% oil total of oil barrels per

wells stream out, Steve rate development As pointed in production shallow and our clearly decline of field. the Giddings demonstrates this the

costs EBITDAX second million. our prices. able during adjusted weak completion to We with in EBITDAX keep quarter $XX million despite product was were the approximately of Our from $XX spending very drilling our quarter D&C at and adjusted total capital headwinds the XX% of the

X. on second Slide our benefit initiatives cost results. costs The of in was evident our reduction quarter to Turning

quarter, decline expense per $X.XX of track achieve $XX million including the additional quarter. cash from LOE operating on we through adjusted and amount G&A a prior costs. can similar interest in an second XX% think and the total reductions remain outlined our from this period We BOE, exceed cost to and in savings we and or the total quarter, we G&A XX% year Our decrease first cost sequential last

decline cost towards development and noted, improve, million Including through costs. to for As gains. completing and cost the finding rate per continue per Steve well we $X Giddings efficiency DD&A approximates well our for quarter, our our in of our second expect and further $X.XX drilling BOE wells which overall

Our income $XX.XX and per full-cycle prices, on of second Using structure during quarter this BOE, during were positive we per generate expect net as the Slide the and to costs X. second at product the year. half current cost earnings share shown

gross we which and quarter, Our expect XXXX mature senior long-term any the issue in notes, in remained of $XXX debt. to debt do million not new unchanged in

We $XXX credit liquidity, million of facility. undrawn including have an $XXX approximately million

condensed shown on X. June as and are liquidity Our and X balance XX sheet of Slide

the third guidance for to Turning quarter.

our remains We a to be for of XX% capital completions model. drilling, related and production equipment which of adjusted continue our target approximately our core characteristic spending EBITDAX, business to

to We in spending further finished, prices dependent X with drilling our we our on this pad EBITDAX. product rig. and will multi-well to in is are will ducts Once keep pad currently have and operated drilling Giddings ability be Giddings, with our our X a

the any have XX remainder of Karnes did the to ducts wells also plan we year. during not We Karnes operated in area, the complete

second production wells any range quarter the in in be of the to to with expect the in no operated current quarter. the turned XX,XXX quarter, quarter, XX% - we our will our wells of do per third of While we to oil to XX% evident quarter complete towards BOE With end production day wells completing not complete in the from estimate range be line to XX,XXX did we third the the during begin in overall these during production volumes. of fourth Giddings and wells

quarter to trough the production. terms period this in of our expect the third year for We be

to the percent below XX%. decline As as fourth be wells later during a D&C expect production year the EBITDAX the adjusted on XXXX exceed year, product our of At both levels expect we this the we third production half of our well bring and begin in quarter. rate capital to prices, for to the and our we quarter current our exit second

for flow with ample free well summary, We is generate balance - expect to is to continuing positioned Magnolia our the towards financially cash and the year In increase of year well end. remainder with liquidity. cash cash

activity able attractive towards product allocate are to manage price levels opportunities. allowing now and to fluctuations We ready capital take your in our questions. to to us response We're

Operator

first Truist Instructions]. from [Operator Today's Neal comes with question Securities. Dingmann

Neal Dingmann

the thanks Giddings Steve, data on first my development question - wells. XX for is those

lowering to mean, would both speak on topic, so And I you could you just my are talked secondly, some potentially and the And or if as hit would the Giddings area, compete in next to start you that Karnes? area with of development position focus really, acres? questions tackle just you development activity you quickly, them that's development I'm Or that on can XX,XXX cost, your how how first, maybe both. wondering you of just specifically, So plan And massive remaining I'll cost, all return that delineating the the year? there? really, then about lower more will

Stephen Chazen

year. start with the We'll next

next Our all places piece. manage If would some complete XX%, we at within it's you get Oil year, how model of half acre cash plan but maybe get exploit we in take prices of other if is next that were some it The you rig another. rig drives get we activities, the and a the take and we'll $X.XX drilling the year We $XX to point X that a continue XX,XXX wells. the off of current expect flow of use to drilling can Karnes some much have. at also you driven. $XX, -

really down, - well Karnes pickup comes non-op in We real a as people, also come you have declined for our drill sharply activity in progress from the you numbers like, in be a good costs away. see base that. area, in will drilling The months same few ways, that be the of we in that. sure. Because last cautious there'll It three for although any we're drilling don't the have and base and to have as the getting don't from were counties quite some

The pretty Karnes I'm are So in what confident differently. cost. just declining well well shaped

modest You all look like then you production. of get and production And Karnes have the well, as very period a The see whole bunch can you of quickly. this. long it, they a of sort

pretty You flat production. have

than afterwards, You start is decline recoverable months Karnes getting maybe be the well. higher shallower. declines ultimate much will And X barrels the - significantly higher

Karnes more You for going you're not the because it rather production and want reach as think over if get than except that XX%, at business. as oil environment whatever But want well, sort environment, quicker or the the of your - so low-price them we - to not Karnes with our to inability you In actually stretch start you to outcome. exceed till that's is stretch time produce get to you It's a you quick. once. your the At over and get to low-price $XX say environment, your all a going switch that, environment back the time, slightly. or to the you creates you exactly, if but better you $XX money number what all and to barrels manage guides to want not money over back $XXX And It can, time. I'm got real barrels. drilling. in you're you exaggerating going oil to in get it's quickly probably you're

come really they'll pretty already down. goes, nicely. cost First down They're

Operator

Jeff Capital Grampp from comes Markets. today with question next Northland Our

Jeffrey Grampp

I those derisked based XX? variability on continue just that how got XX,XXX on decent of much of point within kind at kind guess in I degree the curious, you wells? you're of wells then of those kind say this Giddings. acres, know And dispersion the around just Steve, Would curious wanted average you And XX seeing XX it. a I on that's digging to all

Stephen Chazen

is, all that's they're The I - one the bunched it's in not think place, question. booked f answer

in acres. So might pretty where or earlier a some of results, problems. mechanical some like we what's XX,XXX us the problem might the the much variability. think see have There's you on something it you variability going that, some wells, especially in the tells I of Most had mechanical

not exists. more some have And in mess I that the ability because more the better got so our you'll - We're - - well. laterals as are variation. probably see longer There's variation there's And up we some current confidence think wells we're to results. we've getting the

time these I speaking, that generally better, So worse. view would not averages get over would

X lot a that - you're more entertaining XX locations XX. of more running it's were This be rather be if than rig. it'd So would

Jeffrey Grampp

good then gave you don't $XX is though. wanted break commentary XXXX the And of operated Great. in and rig, rule, you growth? that kind amount you your I if then year-over-year stuff that it the ducts So right, just broke put a Steve, And that of you at Karnes on contemplates of exit-to-exit production. clarify maintenance Karnes there? kind the remarks, of that like and growth $X, sounds some Giddings kind Is prepared then heard I guess, nonoffice. to some

Stephen Chazen

the will from over fourth be be quarter. the we It'd growth third So fourth that up quarter quarter, where the Yes. - exit? from were

think. of that's So sort what we

is the finding in Maybe showed are cost, So pretty there's little Giddings. to a I area. after costs - great. to it but wide And I much sort sort Chris it's got in you'll DD&A less, the of of that the slides. ducts or here. our then At X margin high generating write-down in you've more one cash a there's it's that the X.X have non-op costs. in Karnes. pretty the fairly mean of XX actually finding cash of Karnes, this in mean, the a not completion or rate rigs And - - the

on, I don't statements, little a now, going they're while, pretty usually they financial the think, over least So reflect reflecting what's going what's pretty for but accurately on. right what's accurately at time,

Operator

question with our from today Steven comes And Dechert next KeyBanc.

Steven Dechert

guys any want Karnes? are AFDs getting operators Just see if to you other in from

Stephen Chazen

doing Not not much. We believe but some, that much. really they're

You commitments going at have guess you may or what speculate is that as it, they is that drilling have explorations why. which lease can lease basins it But in, they looked to if in assets on. other - be I I

Operator

from Greg today next Energy. comes Our with question Tuttle Simmons

Gregory Tuttle

decline I'm Is the function or what to general driving Field? is choke that the a of ESPs, as in the Giddings curious management reservoir? just shallow

Stephen Chazen

No, that's reservoir. general

think about Karnes you If a well well. to, say, Giddings compared

in they Giddings, and wells fractures, if you way. think So are they a natural there fractures. vertical natural drilled the to of fractures, where lot Historically, it that looking for natural want provided seismic which of use fracing, the

So the flow frac it, fractures, to natural these a horizontal drill like you'll and for if well while some takes you - you'll fracturing Karnes reservoir, of of move the they of you and it there. real the have - some They up open also quickly. effect just but oil a in this same don't

overall fundamentally a different it's number. So

looks wells a But cause typical flow. got this we're well, some like - frac really You've the that do this. doing nothing way deliberately but the with not is it's to

Gregory Tuttle

then, question you. you. Got And maybe a I Got Perfect. there's Chris. for guess,

shareholder that X a basis, maybe of think priority debt cash A&D balance how cash go-forward potentially towards With the those a of point? returns? that one, outflows hitting the burdens then expectation on about cash Is should low of we or a paydown? the at Is end the and some year, mixture even priority market growing the and your of

Christopher Stavros

can Well, there's things you only do. many so

the We calling a been buy or and you accretive over acquired gas we've can years, last, you and the that of model prioritized of of and certainly, acquisitions, we've some in couple shares, the debt pay a oil over prioritized bunch the So to can the accretive time. to properties debt your have stock.

sort of can let of the to sort accretive flow. So But things we of dividend maybe Xx and some things, like something different. X, of talk to we'd those cash that or those Steve at some they're otherwise, PDP I'd find if best, value a do

Stephen Chazen

even it big certainly And goes, years doesn't see debt it's the we - only have $XXX we've exactly of a our to million got - coverage not right? as burden. we're less is And far make as these in than more one, go. But prices. X debt, And

do the it, resort. gain So in to there's sort I with there's reason of don't real no anything and think, that, last no

we is far I fit we'll just in. an acquire think some basin, but not as do be than and from synergies, really the and things buy where about the will are that happens with see We're see give about that more there with there's opportunity into to that in talk - to A&D really asset. going real One - market fit what knows things. to things in somebody want never us other all X the you where you

So least them. want with be to we at would even

for can bought increased So interest working still occasion. now. - have is properties. And option some we buying there thing and And are an that small we do, things right our second stock the in current in us that's on

Operator

next Instructions]. from Global. comes with Nicholas Pope [Operator Seaport Today's question

Nicholas Pope

I and little the the of Magnolia kind just you versus those a place drilled - acquisition guess, day, are have many to in in numbers wells was looking of in completed the what core has of talk with area asset. topic that at the more of I upon bit How Giddings. wanted

Stephen Chazen

ours. So all are XX

Nicholas Pope

all They're yours?

Stephen Chazen

Yes.

Nicholas Pope

a when look a Got with the kind is I just And plays kind at variability variance investors are the of I to project in the it. just is what of in has on see. forward? hit Giddings, performance area of core comfort like - performance. lot variance these going expectations performance what think you've you seen this the Magnolia chalk date, of of well I drilling start of on And with kind you we been that - that guess like the program when what to - and

Stephen Chazen

up. The that's from there considerably a we what wells true. problem of modest are amount - better, - drilling are a aside or Well, some mechanical some through within kind

Nicholas Pope

jump the done I these - on have those you is guys the So out that that huge the there. wells guess, ones screen, are

Christopher Stavros

We didn't These cherry-pick the are the... wells.

Stephen Chazen

These are all the wells.

Christopher Stavros

XXX have of production. we That days

Stephen Chazen

anybody We in drills have is. all acreage. there pick else the because all that we That's didn't this area

So there all We that's it what is it, didn't any it pick of is. is.

to you to had standard weaker wells can want to fundamental, you do some use not But deviation, say as like basically do mechanical are that drill want so there XX as won't that the, - of that be the you problems. some to They to you ones near these, the are move And edge a if we that. if expand try XX,XXX of acres some the might we there - nothing something that. XX,XXX or

run I play, within get. You But going as this what edge suppose. could far into boundaries, an of you're to sort is current as the drilling

some get anymore. will that. no We you the have all we've shown There's question data about there don't is. But You variance.

Operator

and ladies for to turn And remarks. the like the concludes I'd the over this to gentlemen, conference any session. back question-and-answer management team final

Brian Corales

for next quarter. the you talk and in you we'll Thank to call, participating

Operator

today's We attending call. all conference you presentation. for today's concludes This thank you. Thank

day. now your have may You disconnect wonderful lines, and a

Magnolia Oil & Gas (MGY) 9 Aug 202020 Q2 Earnings call transcript