Magnolia Oil & Gas Corporation Class A

Everyone, and thank you for participating in Magnolia Oil and Gas Corporation's second quarter 2023 earnings conference call. My name is Marlise, and I will be your moderator for today's call. At this time, all participants will be placed in a listen-only mode as our call is being recorded. I will now turn the conference over to Magnolia's management for their prepared remarks, which will be followed by a brief question and answer session. Please go ahead.

Thank you, Marlies, and good morning, everyone. Welcome to Magnolia Oil and Gas's second quarter earnings conference. in 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 second quarter 2023 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.

Thank you, Tom, and good morning, everyone. We appreciate you joining us today for a quarterly update and comments around our second quarter 2023 results. I plan to reiterate some of Magnolia's primary corporate goals and discuss some of what we've accomplished most recently and help us achieve those goals and objectives. I'll also briefly speak to our latest quarterly results, specifically around the strong execution we've had related to our cost reduction efforts. Brian will then review our second quarter financial results in more detail and provide some additional guidance before we take your questions. As we marked our fifth anniversary earlier this week as a publicly traded company, Magnolia is recognized for having established a unique organization with high quality assets and a differentiated business model for E&T companies. This is guided by the principles of low debt, high operating margins, and a focus on capital discipline. These principles provide us with an orderly framework to help achieve our overall goals. In terms of our objectives, First, Magnolia strives to be the most efficient operator of best-in-class oil and gas assets and generating the highest returns on those assets while employing the least amount of capital for drilling and completing wells. Second, the return of a substantial portion of our free cash flow to our shareholders in the form of share purchases and a secure and growing dividend. And finally, utilizing some of the excess cash generated by the business pursue bolt-on oil and gas property acquisitions that help to improve our overall business, sustain our high returns, and increase our dividend share or share payout capacity. As we cross this milestone as an organization, it is important to recognize some of our achievements toward these goals. Five years ago, Magnolia was a much smaller company with a production base weighted towards our Carnes asset with a large, relatively unknown acreage position in the Giddings field. Five years later, our teams have been instrumental in transitioning Giddings into full development and an asset that can compete with some of the best shale plays in the US in terms of growth, low reinvestment rate, and returns. The majority of Magnolia's current production now comes from Giddings, where we have learned a lot and is still in its earlier stages of development. This has enabled Magnolia's total production and reserves to each grow by more than 50% over the past five years. We achieved this growth through the efficient reinvestment of only 45% of our cumulative operating cash flow for drilling and completing wells, allowing us to generate significant free cash flow while maintaining a strong balance sheet. We utilized 23% of our cumulative operating cash flow or more than $850 million to repurchase 22% of our outstanding shares and toward continuously improving our share per share metrics. We established a secure dividend which has grown by 64% since 2021 to an annualized rate of 46 cents a share. Cumulative capital returned to our shareholders over the five years has exceeded $1 billion. We have also improved our business and added to our asset base by completing numerous bolt-on acquisitions totaling more than $460 million. The strength of our second quarter capital and operating costs, which did not appropriately reflect the decline in product prices as compared to last year. Our teams were proactive in engaging early and working cooperatively with our oilfield service partners and material suppliers to reduce costs while sustaining activity levels. That work is evident in our lower capital spending for the quarter, which was approximately 15% below our earlier guidance, in addition to our cash operating costs, which declined 18% sequentially. At current product prices, our actions should provide improved pre-tax operating margins and more free cash flow to potentially redeploy in the business during the back half of the year. With the benefit of these cost savings initiatives, we now expect our total D&C capital for 2023 to be in the range of $425 to $440 million and below our previous guidance of $440 to $460 million. This represents a 14% reduction from our initial 2023 capital spending plan. This year's capital outlays are now expected to be lower than our full year spending during 2022. The reduction in our capital spending and cash operating costs as a result of our efforts highlight Magnolia's focus on capital efficiency, generating high operating margins, and delivering strong and consistent free cash flow. We also continue to see strong wealth productivity out of our Giddings asset and where most of our D&C capital is being allocated. As a result, we're raising the 7% and 8% compared to earlier growth expectations of 5% to 7%. Again, this speaks to the high quality of our assets and matches our goal of being a low-cost and capital-efficient operator of those assets with D&C spending to only about half of our cash flow. With lower capital spending and increased production, our free cash flow generation has improved and providing us with greater flexibility. During the quarter, Magnolia generated $93 million in free cash flow, supporting our dividend and share repurchase program with approximately three-quarters of the free cash flow returned to our shareholders through these initiatives. Earlier this week, our Board of Directors increased our share repurchase authorization by 10 million shares, bringing the total current remaining authorization to just over 14 million shares and allowing us to opportunistically repurchase our stock into next year. plan to continue to repurchase at least 1% of our outstanding shares per quarter. Finally, at the end of July, we closed on a small oil and gas property acquisition in the Giddings area for approximately $40 million. This is an example of continuing to execute on our strategy of pursuing bolt-on assets and adding to our high-quality bench in and around areas that we understand well and that improve our overall business. This asset is outside of our core to significant knowledge we have gained through operating in the Giddings field. We'll continue to pursue similar type transactions that add to and complement our asset base and improve the business. I'll now turn the call over to Brian.