Magnolia Oil & Gas Corporation Class A

Good day and welcome to the Magnolia Oil & Gas second quarter 2020 earnings release and conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Brian Corales, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Rocco, and good morning, everyone. Welcome to Magnolia Oil & Gas' second quarter 2020 earnings 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, rhetorically, 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 2020 earnings press release as well as the conference call slides from the investor section of the company website at www.magnoliaoilgas.com. I will now turn the call over to Mr. Steve Chazen.

Good morning and thank you for joining us today. My comments this morning will focus on our plans for the remainder of the year, including an update on the Giddings Field. Chris will review our second quarter results and financial positions. He will also discuss our cost savings, where we've made some good early progress to better align our cost structure with the current product price environment. He will then provide some additional guidance before we take your questions. Magnolia's business model remains unchanged, and we continue to focus our efforts on generating stock market value over time. The recent downturn has further solidified our strategy of running a focused business, maintaining low financial leverage Thank you very much. and we remain committed to keeping within our 60% rule for the year. In response to the sharp decline in product prices earlier this year, we took action to reduce activity and capital spending by dropping our operated rig in Carnes and curtailing any completion of additional assets, additional wells throughout our assets. Although we have not completed any operated wells since February, we continue to run one operated rig in Giddings Field We are currently drilling a multi-well pad in our early stage development area. Our ultimate level of activity at Giddings the remainder of this year will depend on product prices that would allow us to keep our spending around 60% of our EBITDAX for the year. At current product prices, we plan to start completing some of the ducts in Giddings towards the end of the third quarter. We do not currently plan to complete any of the operated ducts in the Carnes area during the remainder of the year. We believe that the pace of non-op activity in Carnes is currently picking up. In Carnes, we have more locations in ducts, obviously. But because of the high initial production in a Carnes well, basically you're going to get $40 in $2 gas for it. I think there's plenty of time to reap that maybe next year. But in a Giddings well, we'll talk about here in a minute, the bulk of the production is spread over at least six months. So you get a more average oil price. I'd like to spend a few minutes specifically on our Giddings asset. And we would turn your attention to slide four in the conference call presentation. Since Magnolia's inception two years ago, most of our activity in Giddings was focused on gaining a better understanding of our 63,000 plus gross acre position through a steady exploration appraisal program. We would drill a well and move the rig often many miles or sometimes several counties before drilling another of that well. This was not designed with the intention of forming an efficient development program. The REV was focused on an effort towards learning more about our acreage and establishing a model that would increase our rate of success. Through this appraisal, we were able to outline a core area of approximately 70,000 acres where our results have been very good. While there are also other areas that are getting sufficient and have shown very positive results, It is in this core area where we have the most data and well results. We currently have a total of 14 horizontal wells in this core acreage with at least 180 days of production. Results have been very strong with an average well producing 1,374 barrels of oil equivalent a day for 180 days with half the production stream is oil. that another well, the average well, has produced nearly 250,000 barrels of oil equivalent in the first six months, with about half of that being oil. Production history of these well profiles demonstrates they are very different from a typical shale well. The wells have typically reached peak production in the second 30 days and have a shallower production profile than our Carnes wells and produce more oil over the life of the well. Evidence of lower rate of decline can be seen on slide four. as these wells have 30, 90 and 180 day oil rates of 781 barrels a day, 783 barrels a day and 677 barrels a day respectively. Our most recent wells have exceeded these average rates. Our drilling activity this year in Giddings is focused on our early stage development area and all with multi-well pads. Our first multi-well pad that we discussed last quarter had an average well cost of about $7 million. This was well below the $8.5 million average cost of experience last year. Our well cost should continue to decline towards $6 million per well as we see further efficiencies and gain more experience drilling on the acreage. As an example, on our most recent three-well pad that finished drilling in June, Thank you for joining us. as well as to drill additional paths in Giddings and expect to begin completing wells here before the end of the current quarter. Shallower decline rates and lower well costs should improve our capital efficiency as we continue to pursue our development of the Giddings field. The driver in all of our activities is to keep our cash flow Thank you, Steve, and good morning, everyone.