Magnolia Oil & Gas Corporation Class A

Good day and welcome to the Magnolia Oil and Gas First Quarter 2023 Conference Call. All participants will be in listen-only mode. If 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. Please note that this event is being recorded. I'd like to turn the conference over to Mr. Jim Johnson. Please go ahead.

Thank you, and good morning, everyone. Welcome to Magnolia Oil and Gas' first quarter earnings conference call. Participating on the call today are Chris Stavros, Magnolia's President and Chief Executive Officer, and Brian Corrales, Senior Vice President and Chief Financial Officer. 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 first quarter 2022 over to Mr. Chris Stavros.

Thank you, and good morning, everyone. We appreciate you joining us today for a discussion of our first quarter 2023 results. I will make some brief comments about the latest quarter, talk about where we stand currently, and address some actions that we are taking around our capital spending and how this will impact our outlook for the rest of the year. Brian will then review our first quarter financial results in more detail and provide some additional guidance before we take your questions. Our first quarter results delivered a solid start to the year, supported by strong well performance in both the Carnes and Giddings areas. Steady activity and ongoing operating efficiencies at Giddings provided production growth of 10% versus last year's first quarter. Additional DNC efficiencies realized in our Giddings asset have helped to partly mitigate the higher costs. We generated more than $60 million of free cash flow during the quarter, despite sustaining lower operating margins caused by weaker oil and gas prices. as well as higher costs associated with oil field service inflation. Since our inception, Magnolia's focus has remained consistent and includes a disciplined approach toward capital spending, targeting moderate annual production growth with high pre-tax operating margins while generating reliable free cash flow. We strive to achieve these goals while continuously improving our per-share metrics and maintaining a strong balance sheet with low levels of debt. Oil and gas prices have moved significantly lower since late last year and into 2023, while oil field service and materials costs remained elevated. This combination has weakened our operating margins and returns. The current cost structure for oil field services and materials does not reflect the sharp decline in overall product prices as compared to last year. So how have we responded to this? Instead of allocating more capital to achieve higher growth, which would drive our F&D costs higher and further dilute our margins, we have taken prudent actions to better align our capital spending to reflect the current environment. Beginning in the first quarter, we proactively worked with our top service providers and material suppliers to reduce our costs while planning to defer only a modest amount of our operated activity. So how do we expect this to impact Magnolia? These measures should result in at least a 10% reduction in this year's capital spending, deliver full-year 2023 production growth in the range of 5% to 7%, and provide us with greater operating flexibility while generating greater amounts of free cash flow during the year. We currently expect our total D&C capital for 2023 to be in the range of $440 to $460 million, which represents at least a 10% reduction from our original guidance. This new level of spending, which is expected to be lower than our full year 2022 capital, focuses on achieving improved returns and higher free cash flow until service and material costs are better aligned with oil and gas prices. As I mentioned, the discussions with our service providers and suppliers and the modest adjustments to our activity began during the first quarter and were proactive decisions on our part to reduce our capital costs. The impact of our actions is expected to be immediately evident and is reflected in our second quarter guidance for DMC capital of approximately $100 million, which is about 30% lower than first quarter levels. This plan also allows for operational flexibility should the cost and commodity environment become more aligned later this year. The overall outcome is consistent with our business model, which includes limiting our capital spending approximately 55% of our EBITDAX, along with achieving mid-single-digit annual production growth. I want to praise our teams for working collaboratively and creatively to find solutions and adapting to the current environment to preserve our capital and maximize efficiencies. Our valued partners with whom we've built strong relationships continue to work cooperatively with our teams to help us reduce costs, which allows us to maintain a steady pace of activity without losing the momentum around operating efficiencies that we have worked hard to achieve. Despite the deferral of a modest amount of our operated activity, we plan to continue operating two drilling rigs through the remainder of the year. One will drill development wells at Giddings, while the other rig will drill in both Carnes and Giddings, including some appraisal wells at Giddings. We continue to gain efficiencies at Giddings with several recent patents establishing new company records for completion stages per day. These efficiencies provide us further flexibility, and options to maximize our free cash flow. Giddings is currently producing well over 50,000 DOE per day and represents approximately two-thirds of the total company production. Most of Magnolia's growth this year will come from our Giddings asset as a larger proportion of our capital is allocated to this area. Our disciplined approach around capital allocation ideally positions us to create value through the cycle while supporting our differentiated return of capital program, which focuses on increasing the per share value of the company and pursuing actions to increase our dividend payout capacity. This balanced strategy is underpinned by targeting moderate annual production growth. We're purchasing at least 1% of our outstanding shares each quarter and pursuing small accretive bolt-on oil and gas property acquisitions. These activities reinforce our investment proposition of providing 10% annual production growth over time. I'll now turn the call over to Brian.