mgy-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 001-38083

Magnolia Oil & Gas Corporation

(Exact Name of Registrant as Specified in its Charter)


Delaware		81-5365682
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Nine Greenway Plaza, Suite 1300		77046
Houston,	Texas
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (713) 842-9050


Securities registered pursuant to section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.0001	MGY	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 3, 2021, there were 175,525,081 shares of Class A Common Stock, $0.0001 par value per share, and 66,624,035 shares of Class B Common Stock, $0.0001 par value per share, outstanding.

GLOSSARY OF CERTAIN TERMS AND CONVENTIONS USED HEREIN

The following are definitions of certain other terms and conventions that are used in this Quarterly Report on Form 10-Q:

The “Company” or “Magnolia.” Magnolia Oil & Gas Corporation (either individually or together with its consolidated subsidiaries, as the context requires, including Magnolia Intermediate, Magnolia LLC, Magnolia Operating, and Magnolia Oil & Gas Finance Corp.).

“Magnolia Intermediate.” Magnolia Oil & Gas Intermediate LLC.

“Magnolia LLC.” Magnolia Oil & Gas Parent LLC.

“Magnolia LLC Units.” Units representing limited liability company interests in Magnolia LLC.

“Magnolia Operating.” Magnolia Oil & Gas Operating LLC.

“EnerVest.” EnerVest Ltd.

“Business Combination.” The acquisition, which closed on July 31, 2018, of the Karnes County Assets; the Giddings Assets; and a 35% membership interest in Ironwood Eagle Ford Midstream, LLC.

“Class A Common Stock.” Magnolia’s Class A Common Stock, par value $0.0001 per share.

“Class B Common Stock.” Magnolia’s Class B Common Stock, par value $0.0001 per share.

“Giddings Assets.” Certain right, title, and interest in certain oil and natural gas assets located primarily in the Giddings area of the Austin Chalk formation.

“Issuers.” Magnolia Operating and Magnolia Oil & Gas Finance Corp., a wholly owned subsidiary of Magnolia Operating, as it relates to the 2026 Senior Notes.

“Karnes County Assets.” Certain right, title, and interest in certain oil and natural gas assets located primarily in the Karnes County portion of the Eagle Ford Shale formation in South Texas.

“Karnes County Contributors.” EnerVest Energy Institutional Fund XIV-A, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIV-WIC, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIV-2A, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIV-3A, L.P., a Delaware limited partnership, and EnerVest Energy Institutional Fund XIV-C, L.P., a Delaware limited partnership.

“RBL Facility.” Senior secured reserve-based revolving credit facility.

“2026 Senior Notes.” 6.0% Senior Notes due 2026.

“Services Agreement.” That certain Services Agreement, as amended, dated as of July 31, 2018, by and between the Company, Magnolia Operating, and EnerVest Operating LLC (“EVOC”), pursuant to which EVOC provides certain services to the Company as described in the agreement.

“Stockholder Agreement.” The Stockholder Agreement, dated as of July 31, 2018, by and between the Company and the other parties thereto.

“Non-Compete.” The non-compete agreement, dated July 31, 2018, between the Company and EnerVest, pursuant to which EnerVest and certain of its affiliates are restricted from competing with the Company in certain counties comprising the Eagle Ford Shale.

Table of Contents

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets

Consolidated Statements of Operations (unaudited)

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

Consolidated Statements of Cash Flows (unaudited)

Notes to Consolidated Financial Statements (unaudited)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

Signatures

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Magnolia Oil & Gas Corporation

Consolidated Balance Sheets

(In thousands)


	March 31, 2021		December 31, 2020
ASSETS	(Unaudited)		(Audited)
CURRENT ASSETS
Cash and cash equivalents	$	178,194	$	192,561
Accounts receivable	107,229		81,559
Drilling advances	983		3,805
Other current assets	2,812		3,601
Total current assets	289,218		281,526
PROPERTY, PLANT AND EQUIPMENT
Oil and natural gas properties	2,170,928		2,130,125
Other	4,853		4,412
Accumulated depreciation, depletion and amortization	(1,027,979)		(985,010)
Total property, plant and equipment, net	1,147,802		1,149,527
OTHER ASSETS
Deferred financing costs, net	5,465		6,042
Intangible assets, net	7,233		9,346
Other long-term assets	6,130		6,979
Total other assets	18,828		22,367
TOTAL ASSETS	$	1,455,848	$	1,453,420
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	74,125	$	62,626
Other current liabilities (Note 8)	51,810		66,323
Total current liabilities	125,935		128,949
LONG-TERM LIABILITIES
Long-term debt, net	391,448		391,115
Asset retirement obligations, net of current	89,209		88,232
Other long-term liabilities	5,244		5,702
Total long-term liabilities	485,901		485,049
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS’ EQUITY
Class A Common Stock, $0.0001 par value, 1,300,000 shares authorized, 183,540 shares issued and 176,093 shares outstanding in 2021 and 168,755 shares issued and 163,280 shares outstanding in 2020	18		17
Class B Common Stock, $0.0001 par value, 225,000 shares authorized, 66,624 shares issued and outstanding in 2021 and 85,790 shares issued and outstanding in 2020	7		9
Additional paid-in capital	1,731,234		1,712,544
Treasury Stock, at cost, 7,448 shares and 5,475 shares in 2021 and 2020, respectively	(59,239)		(38,958)
Accumulated deficit	(1,062,206)		(1,125,450)
Noncontrolling interest	234,198		291,260
Total equity	844,012		839,422
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,455,848	$	1,453,420

The accompanying notes are an integral part to these consolidated financial statements.

Magnolia Oil & Gas Corporation

Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)


	Three Months Ended
	March 31, 2021		March 31, 2020
REVENUES
Oil revenues	$	146,413	$	154,686
Natural gas revenues	34,764		16,175
Natural gas liquids revenues	26,486		10,504
Total revenues	207,663		181,365
OPERATING EXPENSES
Lease operating expenses	19,392		24,163
Gathering, transportation and processing	8,799		8,020
Taxes other than income	10,762		10,018
Exploration expense	2,062		556,427
Impairment of oil and natural gas properties	—		1,381,258
Asset retirement obligations accretion	1,331		1,438
Depreciation, depletion and amortization	42,944		142,671
Amortization of intangible assets	2,113		3,626
General and administrative expenses	20,364		18,080
Total operating expenses	107,767		2,145,701

OPERATING INCOME (LOSS)	99,896		(1,964,336)

OTHER INCOME (EXPENSE)
Income from equity method investee	—		440
Interest expense, net	(7,294)		(6,757)
Loss on derivatives, net	(482)		—
Other expense, net	(229)		(472)
Total other expense, net	(8,005)		(6,789)

INCOME (LOSS) BEFORE INCOME TAXES	91,891		(1,971,125)
Income tax expense (benefit)	399		(75,826)
NET INCOME (LOSS)	91,492		(1,895,299)
LESS: Net income (loss) attributable to noncontrolling interest	28,248		(668,289)
NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON STOCK	$	63,244	$	(1,227,010)

NET INCOME (LOSS) PER SHARE OF CLASS A COMMON STOCK
Basic	$	0.38	$	(7.34)
Diluted	$	0.37	$	(7.34)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic	166,952		167,149
Diluted	169,636		167,149

The accompanying notes are an integral part of these consolidated financial statements.

Magnolia Oil & Gas Corporation

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(In thousands)


	Class A Common Stock			Class B Common Stock			Additional Paid In Capital		Treasury Stock			Retained Earnings/ Accumulated Deficit		Total Stockholders’ Equity		Noncontrolling Interest		Total Equity
	Shares	Value		Shares	Value				Shares	Value
Balance, December 31, 2019	168,319	$	17	85,790	$	9	$	1,703,362	1,000	$	(10,277)	$	82,940	$	1,776,051	$	952,478	$	2,728,529
Stock based compensation expense	—	—		—	—		1,902		—	—		—		1,902		977		2,879
Changes in ownership interest adjustment	—	—		—	—		(970)		—	—		—		(970)		970		—
Common stock issued related to stock based compensation, net	154	—		—	—		(298)		—	—		—		(298)		(154)		(452)
Class A Common Stock repurchase	—	—		—	—		—		1,000	(6,483)		—		(6,483)		—		(6,483)
Distributions to noncontrolling interest owners	—	—		—	—		—		—	—		—		—		(284)		(284)
Net loss	—	—		—	—		—		—	—		(1,227,010)		(1,227,010)		(668,289)		(1,895,299)
Balance, March 31, 2020	168,473	$	17	85,790	$	9	$	1,703,996	2,000	$	(16,760)	$	(1,144,070)	$	543,192	$	285,698	$	828,890


	Class A Common Stock			Class B Common Stock			Additional Paid In Capital		Treasury Stock			Accumulated Deficit		Total Stockholders’ Equity		Noncontrolling Interest		Total Equity
	Shares	Value		Shares	Value				Shares	Value
Balance, December 31, 2020	168,755	$	17	85,790	$	9	$	1,712,544	5,475	$	(38,958)	$	(1,125,450)	$	548,162	$	291,260	$	839,422
Stock based compensation expense	—	—		—	—		1,835		—	—		—		1,835		870		2,705
Changes in ownership interest adjustment	—	—		—	—		28,924		—	—		—		28,924		(28,924)		—
Common stock issued related to stock based compensation, net	244	—		—	—		(839)		—	—		—		(839)		(399)		(1,238)
Class A Common Stock repurchases	—	—		—	—		—		1,973	(20,281)		—		(20,281)		—		(20,281)
Class B Common Stock purchase and cancellation	—	—		(5,000)	(1)		1		—	—		—		—		(50,781)		(50,781)
Non-compete settlement	375	—		—	—		(11,231)		—	—		—		(11,231)		(5,921)		(17,152)
Conversion of Class B Common Stock to Class A Common Stock	14,166	1		(14,166)	(1)		—		—	—		—		—		—		—
Distributions to noncontrolling interest owners	—	—		—	—		—		—	—		—		—		(155)		(155)
Net Income	—	—		—	—		—		—	—		63,244		63,244		28,248		91,492
Balance, March 31, 2021	183,540	$	18	66,624	$	7	$	1,731,234	7,448	$	(59,239)	$	(1,062,206)	$	609,814	$	234,198	$	844,012

The accompanying notes are an integral part to these consolidated financial statements.

Magnolia Oil & Gas Corporation

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Three Months Ended
	March 31, 2021		March 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME (LOSS)	$	91,492	$	(1,895,299)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	42,944		142,671
Amortization of intangible assets	2,113		3,626
Exploration expense, non-cash	—		555,189
Impairment of oil and natural gas properties	—		1,381,258
Asset retirement obligations accretion	1,331		1,438
Amortization of deferred financing costs	910		896
Loss on derivatives, net	482		—
Deferred taxes	—		(74,654)
Stock based compensation	2,705		2,879
Other	(84)		(440)
Changes in operating assets and liabilities:
Accounts receivable	(25,670)		28,031
Accounts payable	11,499		6,726
Accrued liabilities	(12,997)		(16,547)
Drilling advances	2,823		(563)
Other assets and liabilities, net	605		(333)
Net cash provided by operating activities	118,153		134,878
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, other	(558)		(69,390)
Additions to oil and natural gas properties	(40,166)		(101,391)
Changes in working capital associated with additions to oil and natural gas properties	(1,744)		7,181
Other investing	(416)		(200)
Net cash used in investing activities	(42,884)		(163,800)
CASH FLOW FROM FINANCING ACTIVITIES
Distributions to noncontrolling interest owners	(155)		(284)
Class A Common Stock repurchases	(20,281)		(6,483)
Class B Common Stock purchase and cancellation	(50,781)		—
Non-compete settlement	(17,152)		—
Other financing activities	(1,267)		(452)
Net cash used in financing activities	(89,636)		(7,219)

NET CHANGE IN CASH AND CASH EQUIVALENTS	(14,367)		(36,141)
Cash and cash equivalents – Beginning of period	192,561		182,633
Cash and cash equivalents – End of period	$

SEC Form 10-Q filed by Magnolia Oil & Gas Corporation