Magnolia Oil & Gas Corporation Class A

Good day and welcome to the Magnolia Oil and Gas first quarter 2021 earnings release and conference call. All participants will be in a listen only mode. Should you need assistance during today's call, press star then zero to speak with a conference specialist. After today's presentation, there will be an opportunity to ask questions. To ask a question, press star then one on a touch tone phone. To withdraw your question, press star then two. Please note this event is being recorded. I would now like to turn the conference over to Brian Corrales of Investor Relations. Please go ahead.

Thank you, Tom, and good morning, everyone. Welcome to Magnolia Oil & Gas' first quarter 2021 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 security 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 the 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 in slide two of the conference call slide presentation with the supplemental data on our website. You can download Magnolia's first quarter 2021 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.

Thank you, Brian. Good morning, and thank you for joining us today. My comments this morning will focus on our business model and provide an update on our Giddings asset. I will also provide some more details for our plans for the remainder of the year. Chris will review our first quarter results. and we'll provide some additional guidance before we take your questions. Our business model centers around disciplined capital spending and generating significant free cash flows. We limit our capital spending to approximately 60% of EBITDAX, which is intended to generate mid-single-digit production growth. As we shift the balance between Carnes and Giddings, we're going to generate higher production growth with lower levels of capital as a result of the improved efficiencies at Giddings. We plan to spend somewhat less than $300 million to generate year-over-year production growth of 6% to 9%, that is, in the high single digits. The reduced amount of capital needed for this level of production growth provides greater free cash flow for Magnolia to improve its per share value. The optionality that free cash flow provides allows Magnolia to improve its business while also enhancing shareholder returns. In contrast, some of our more leveraged peers have to allocate their free cash flow to reducing their debt. We clearly don't need to do that. First quarter was one of the best quarters in our company's short history. We had record earnings, EBIT margins of 48%, just shy of our goal of 50%, and free cash flow of $100 million. Further, with no oil hedges, Magnolia can benefit fully from the improved oil prices. During the first quarter, we spent just $39 million on drilling and completing wells, or 26% of our adjusted EBITDAX, to deliver 3% sequential production growth. Record production at Giddings with driver are better than expected production volumes. Giddings production grew 22% sequentially and was up 45% for the same quarter last year. Oil production at Giddings increased 32% sequentially It was up 73% from the prior year quarter. Our significant production growth at Giddings was accomplished by spending only $91 million of DNC capital over the previous four quarters, demonstrating the quality of the acreage. Well costs at Giddings are averaging about $6 million per well, and one rig can drill about two wells per month. In our initial quarter at Giddings, we now have a total of 28 horizontal wells on line. The eight wells added in the first quarter are in line with the average production rate reported last quarter. The current operated rig at Giddings continues to focus on the initial core area. We're expected to bring online 20 to 24 wells this year. We plan to add a second operated rig this summer to drill wells in both of our asset areas. Production impact, the added activity is not likely to be realized until later in the year, the biggest impact reflected in 2022. Even with the additional rig, our drilling completion costs will be somewhat less than $300 million for the year. Over the last couple of years, a large portion of our free cash flow has gone to adding small bolt-on acquisitions. Now that we have a better understanding of returns generated in our Giddings development, we do not have any need for any large-scale M&A. This allows more of our free cash flow to be used for reducing our share count. We reduced our diluted share count by 4 percent from fourth quarter levels and expect the second quarter share count to average about 245 million shares. We were able to accomplish our annual share reduction goal in the first quarter alone, but we still plan to buy back about 1 percent of our shares each quarter. Despite spending $88 million during the quarter on share repurchases, we still exited the quarter with $178 million in cash. In summary, we had a great start to our business in 2021. With the efficiencies and better productivity at Giddings, we were able to do more with less, all while maintaining our low-cost structure and strong balance sheet. Less capital is needed to grow production, resulting in more free cash flow to improve the value of our business. With no need for any large-scale M&A activity, our free cash flow is focused on share repurchases combined with small bolt-on acquisitions. Finally, we plan to pay our first semiannual dividend in the third quarter. I'll now turn the call over to Chris.