Magnolia Oil & Gas Corporation Class A

Good morning, and welcome to the Magnolia Oil & Gas 3rd Quarter 2020 Earnings Release 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 your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the call over to Brian Corales, Vice President, Investor Relations. Please go ahead.

Thank you, Gary. Good morning, everyone. Welcome to Magnolia Oil & Gas' third 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 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 on the conference call slide presentation with the supplemental data on our website. You can download Magnolia's third quarter 2020 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. Steve Chazen.

Thank you. And thank you for joining us today. My comments this morning will begin with an overview of our business model. discussion of our plans and activities for the rest of the year, including an update on our Giddings development. I will conclude with a general outlook for 2021. Chris will review our third quarter results and our financial position. He will also provide additional guidance before taking your questions. Magnolia's business model, which focuses on spending approximately 60% of our EBITDAX on drilling and completing wells and generating meaningful, consistent, free cash flows, while maintaining low levels of debt remains unchanged. From our inception more than two years ago, this model continues to position us well by providing significant flexibility in how we choose to allocate our free cash flow. Since the beginning of 2019, we've deployed approximately $165 million of cash towards small and mid-sized bolt-on oil and gas property acquisitions, repurchased more than 9 million shares of our stock, Thank you for joining us today. We ended the third quarter with eight ducts in Giddings and ten ducts in the Carnes area, while running one rig operated in Giddings, which continues to drill development wells. We began completing wells at Giddings late in the third quarter and recently brought on our first three-well pad. While still early, the wells on the recent Giddings pad are performing better than the average of the initial 14 wells in our core development area that we discussed with you last quarter. of the eight wells we plan to bring on during the fourth quarter, expect two wells to be gassier, allowing us to take advantage of the recent increase in natural gas prices. Our total fourth quarter production is expected to grow 7% to 10% sequentially, and production in Giddings is expected to grow by at least 20%. As a result, the eighth dock is being brought on line. With the timing of these wells being staggered throughout the quarter, the full impact will not be realized Thank you for joining us today. transitioned to pad development and improved the quality of our drilling crews. Drilling costs per lateral foot have declined nearly 55%, and completion costs per lateral foot have decreased 50%, resulting in total well costs per lateral foot declining 45% compared to 2019 levels. These include total costs for drilling, completion, and associated facilities at Giddings. We expect to capture further efficiencies as we execute our pad development with total well costs falling towards $6 million next year. Before turning the call over to Chris, I want to provide some initial thoughts regarding our plan for 2021, including a general framework for reinvesting our cash in the business and on the return of excess cash to the shareholders. Our plan is to continue to spend approximately 60% of our gross cash flow on drilling and completing programs as part of our organic program. We do not expect to alter this plan, as it is a key characteristic of our business model and provides discipline within the organization. At current product price prices, we plan to run one rig at Giddings in our development area. At current drill times, improved efficiencies at lower costs puts us on pace to drill approximately 20 wells in Giddings next year. We expect to begin completing the ducts in the Carnes area in the first half of 2021, and we currently anticipate a modest increase in non-operated Carnes activities throughout the year. This plan is expected to deliver moderate organic growth compared to our fourth quarter 2020 production levels. As I mentioned earlier, we expect our cash balance to exceed $200 million at the end of the year, and it is difficult to imagine that we need to carry much more than this at any given time. Overall balance strength is important to us. With only $400 million of bonded indebtedness and not due until 2026, paying down debt is not likely to add material value to our stock price. We will continue to look for small to mid-sized bolt-on oil and gas property acquisitions with similar characteristics to our existing asset base. Although we cannot be certain these will occur, we anticipate spending a sizable portion of our cash flows After Capital and Interest Expense on Acquisitions. Any acquisition would need to be accretive to the value of our stock and improve our full cycle cost metrics. Our increased confidence in the Giddings asset area makes us less likely that we would pursue a larger acquisition. Transactions are most likely to be of the smaller bolt-on type, could include producing properties or additional interest in our core areas. In the absence of accretive acquisitions, cash should be allocated to share repurchases. Both on acquisitions and buying back our stock will improve our overall and per share metrics and should generate additional stock market value over time. We will continue to evaluate all cash flow allocation options, including dividends, and plan to provide more details around this as we roll out our full 2021 capital plan early next year. and I'll turn the call over to Chris.