Magnolia Oil & Gas Corporation Class A Common Stock 2026 Q2 Earnings Call

Thank you, Megan. Good morning, everyone. Welcome to Magnolia Oil & Gas's second quarter earnings conference call. Participating on the call today are Chris Stavros, Magnolia's Chairman, President, and Chief Executive Officer, and Brian Corales, Senior 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. Additional information on risk factors that could cause results to differ is available in the company's annual report on Form 10-K filed with the SEC. A full safe harbor can be found on slide two of the conference call slide presentation with the supplemental data on our website.

You can download Magnolia's second quarter 2026 earnings press release, as well as the conference call slides from the investor section of the company's website at www.magnoliaoilgas.com. I will now turn the call over to Mr. Chris Stavros.

Thanks, Tom. Good morning, everyone. Thank you all for joining us today for a discussion of our second quarter 2026 financial and operating results. I know that today is a very busy day of earnings. I will briefly cover our second quarter results, which continue to validate the consistent high-quality nature of our Giddings asset and provide strong overall financial results returns together with our Karnes area business. I will highlight a few items related to the financing underlying our recent agreement to acquire WildFire Energy. Brian will review our financial results for the second quarter in greater detail and provide some additional guidance before we take your questions.

Beginning on slide three in our quarterly investor presentation, Magnolia marked its eight-year anniversary by delivering another quarter of strong and consistent execution, as seen through our financial and operating metrics, which continue to underscore the strength of our differentiated business model and the quality of our asset base. Our strong second quarter financial metrics were supported by both solid production growth and higher year-over-year oil and NGL prices. Our second quarter adjusted net income was approximately $184 million, or $0.99 per diluted share, with adjusted EBITDAX of $370 million during the period. Drilling and completion capital for the second quarter was $125 million, with a reinvestment rate of just 34% of our adjusted EBITDAX and our lowest quarterly rate of capital reinvestment since 2022. Our pre-tax adjusted operating income margins averaged a very robust 51% for the quarter.

Magnolia generated $235 million of free cash flow in the second quarter and returned $80 million of this free cash to our shareholders through a combination of our base dividend and our share repurchase program, where we bought back just over 1.7 million shares during the quarter. Our ongoing discipline around capital allocation, strong operational performance, and continued focus on our financial returns allow us to generate meaningful free cash flow and to continue to execute on our proven business model. For the second quarter of 2026, total company production volumes grew by 8% year-over-year at 106.1 thousand barrels of oil equivalent per day, above our expectations and earlier guidance, with oil production growing by 5% and averaging 41.9 thousand barrels per day. Both total production and oil production volumes established new quarterly records for the company.

Based on the strong second quarter production, we are raising Magnolia's standalone full-year 2026 production growth guidance to 6% from 5%. Production at Giddings continued to be the primary growth driver for Magnolia and setting a new quarterly record with total Giddings production increasing 10% year-over-year to 85.5 thousand barrels of oil equivalent per day and oil production of 29,000 barrels per day, with growth of 7% over the same period. Giddings production accounts for approximately 81% of Magnolia's total company volumes. Production in our Karnes area was relatively flat year-over-year at just over 20,000 barrels of oil equivalent per day during the second quarter, and which we expect to sustain for many years. The Karnes area assets continue to generate a significant amount of free cash flow for Magnolia. Turning to slide four. As we announced last month, we entered into a definitive agreement to acquire WildFire Energy for a total consideration of approximately $4.06 billion.

The acquisition will add approximately 810,000 net acres to Magnolia's Giddings area position and total oil and gas production of roughly 53,000 barrels of oil equivalent per day, including 37,000 barrels per day of oil. The acquisition of the WildFire oil and gas properties and acreage is a natural and strategic fit for Magnolia and greatly improves our business by extending our runway of advantaged profitability and the durability of our significant free cash flow generation. The fit should be clear given the sizable overlap and with roughly 70% of Magnolia's existing acreage benefiting from the transaction, with significantly more acreage benefiting from adjacency.

Our combined position in the Giddings Field will amount to more than 1.25 million net acres with upside development opportunities across multiple benches, including the Austin Chalk, Eagle Ford, and Woodbine. The acquisition is a culmination of our extensive subsurface understanding, experience, and the demonstration of our proven resource capture in the Giddings Field. This creates a premier upstream operation in South Texas by combining two high-quality and complementary assets near Gulf Coast markets, which offer premium pricing for our products. We expect the transaction to be immediately and highly accretive to our key per-share financial metrics, including cash flow, free cash flow, and earnings, in addition to enhancing our D&C capital reinvestment rate.

WildFire is not only a strong fit for Magnolia, offering unique benefits, but it also provides several important characteristics we look for, namely focused, high-quality assets with concentrated scale, a low capital reinvestment rate, the ability to provide moderate production growth with high operating margins, and steady free cash flow allowing for consistent and significant shareholder returns. Following the WildFire announcement, Magnolia executed multiple capital markets transactions to partially fund the acquisition. Magnolia issued 53.3 million new shares in a public equity offering for net proceeds of $1.23 billion, in addition to $500 million of senior notes at a 6.625% coupon due in 2034. These two transactions closed on July 22nd and August 5th, respectively. In total, the WildFire acquisition will be funded with a balanced mix of approximately half equity and half debt, with the acquisition on track and expected to close late in the third quarter.

Turning to slide five. One of the most important elements of the WildFire acquisition is that Magnolia's differentiated, proven, and highly investable business model remains unchanged. While the acquisition adds more leverage than we have carried historically, we believe this is very manageable. Given the significant increase in our free cash flow generation, we have a clear line of sight towards the reduction of debt, which we expect to be less than one times our net debt to EBITDA by year-end 2027, if not sooner, and returning us to our traditionally more conservative leverage profile. As part of our disciplined capital plan, we will continue to limit our D&C spending to 55% of adjusted EBITDAX, which provides consistent free cash flow through the cycle, while delivering both moderate annual total production growth and oil growth.

With our combined oil production mix of approximately 50%, we expect to generate high pre-tax operating margins and, in keeping with our business model, continue to return a significant portion of our free cash flow to our shareholders. This includes a safe, sustainable, and growing dividend, which is expected to compound at a rate of about 10% over the long term, in addition to our ongoing share repurchases of at least 1% of the outstanding shares per quarter. I often mention that one of Magnolia's primary goals is to be the most efficient operator of our best-in-class oil and gas assets to generate the highest returns on those assets while spending the least amount of capital on drilling and completing wells.

The combination of Magnolia and WildFire creates a larger and stronger enterprise with a concentrated acreage position that offers moderate growth, best-in-class financial returns while generating significant free cash flow. Magnolia will continue to look and behave like it has historically, with an emphasis on managing both operational and financial risk and using the same differentiated, proven business model to continuously compound value for our shareholders. As we were briefly restricted from share repurchases while working on the WildFire acquisition, we expect to resume our share repurchases after today's quarterly results. I'll now turn the call over to Bryan for further details on the quarter for some additional guidance.

Thanks, Chris, and good morning, everyone. I will review some items from our second quarter results and refer to the presentation slides found on our website. I'll also provide some additional guidance for the third quarter of 2026 before turning it over for questions. Beginning on slide six, Magnolia delivered a strong quarter, generating adjusted net income of $184 million or $0.99 per diluted share. Our adjusted EBITDAX for the quarter was $370 million, with total capital associated with drilling completions and associate facilities of $125 million, representing just 34% of our adjusted EBITDAX. Second quarter production volumes grew 8% year-over-year to 106.1 thousand barrels of oil equivalent per day while generating free cash flow of $235 million. Our second quarter annualized return on capital employed was 39% as a result of higher prices and increased production.