{"id":85798,"date":"2023-11-17T16:49:46","date_gmt":"2023-11-17T21:49:46","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/magnolia-oil-gas-continues-to-grow-production-with-a-low-reinvestment-rate-nysemgy\/"},"modified":"2023-11-17T16:49:47","modified_gmt":"2023-11-17T21:49:47","slug":"magnolia-oil-gas-continues-to-grow-production-with-a-low-reinvestment-rate-nysemgy","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=85798","title":{"rendered":"Magnolia Oil & Gas Continues To Grow Production With A Low Reinvestment Rate (NYSE:MGY)"},"content":{"rendered":"
\n

<\/picture>
<\/figcaption><\/figure>\n<\/p>\n

Magnolia Oil & Gas Corporation<\/strong> (NYSE:MGY<\/span>) has been efficiently growing its production and now expects 8% production growth (not including its recent Giddings acquisition) in 2023, with a 6% to 7% decrease in capital expenditures compared to 2022. <\/span><\/p>\n

Including the impact of the acquisition, Magnolia also expects to deliver high-single digits production growth (for both total production and oil production) in 2024, with a reinvestment rate of less than 50%. <\/p>\n

This will give Magnolia the ability to continue significant share repurchases while also having the option to increase its dividend from its current $0.115 per share quarterly rate.<\/p>\n

I am keeping my estimated value for Magnolia at $26 to $27 per share at long-term $75 WTI oil and $3.75 NYMEX gas for now. Magnolia’s capital efficiency has improved, with Giddings well costs (per foot) down 15% since the beginning of 2023. Magnolia’s oil cut has trended downwards though as a result of its focus on Giddings (which typically still provides superior returns to its Karnes acreage). Near-term prices for NGLs and natural gas are relatively weak though, and below my longer-term expectations.<\/span><\/p>\n

Q3 2023 Results<\/h2>\n

Magnolia reported 82,651 BOEPD (40% oil) in Q3 2023 production, which was a 1% increase in total production, but a 4% decrease in daily oil production compared to the 81,881 BOEPD (42% oil) that it reported in Q2 2023.<\/p>\n

Magnolia previously mentioned that it expected total production to be around the same in Q3 2023 as it was in Q2 2023, so its overall production did a bit better than that. Magnolia’s oil production has taken a hit from its focus on its Giddings asset, which accounted for around 75% of Magnolia’s total production in Q3 2023. Magnolia’s Giddings production was only 34% oil in Q3 2023, but it has been prioritizing development there over Karnes since Giddings provides better returns for the company.<\/p>\n

Magnolia indicated that its D,C&F cost per foot at Giddings has gone down by 15% since the start of 2023, and this has allowed it to grow total production (albeit with a lower oil cut) with a relatively low reinvestment rate. Magnolia reported $239 million in adjusted EBITDAX in Q3 2023, while its D&C capex was 44% of adjusted EBITDAX at $104.3 million.<\/p>\n

Giddings Acquisition<\/span><\/h2>\n

Shortly after I last looked at Magnolia in early September, it announced a $300 million bolt-on Giddings acquisition. Magnolia indicated that after purchase price adjustments it expected to pay $260 million in cash. There is also another $40 million in contingent cash consideration potentially due by December 2025 depending on commodity prices. <\/p>\n

The acquisition involves 48,000 net acres in Giddings. Magnolia expects production to be around 5,000 BOEPD (70+% oil) at closing in Q4 2023. This is significantly oilier than Magnolia’s 34% oil cut for its Giddings production in Q3 2023. This acquisition may boost Magnolia’s oil cut in Giddings up to around 37%.<\/p>\n

Magnolia also mentioned that the price involved a 2.9x multiple to estimated 2024 EBITDA, with a free cash flow yield of above 20%. This was based on strip prices at the time, which would have been around $80 WTI oil.<\/p>\n

At the current strip of $75 WTI oil (CL1:COM) instead for 2024, the estimated multiple would be closer to 3.1x 2024 EBITDA with a free cash flow yield of approximately 19%. This acquisition is expected to close around the end of November.<\/p>\n

Potential 2024 Outlook<\/h2>\n

Based on Magnolia’s comments, I am modeling its 2024 production at around 90,000 BOEPD, including 37,300 barrels per day in oil production. This is near double-digits production growth compared to 2023, although production growth would be 4% to 5% without the Giddings acquisition.<\/p>\n

At current 2024 strip of $75 WTI oil and $3.15 NYMEX gas, Magnolia may be able to generate $1.335 billion in oil and gas revenues.<\/p>\n

<\/span><\/p>\n\n\n\n\n<\/colgroup>\n\n\n\n\n\n
Type<\/td>\nBarrels\/Mcf<\/td>\n$ Per Barrel\/Mcf<\/td>\n$ Million<\/td>\n<\/tr>\n
Oil<\/td>\n13,614,500<\/td>\n$73.50<\/td>\n$1,001<\/td>\n<\/tr>\n
NGLs<\/td>\n9,136,862<\/td>\n$20.00<\/td>\n$183<\/td>\n<\/tr>\n
Gas<\/td>\n60,591,825<\/td>\n$2.50<\/td>\n$151<\/td>\n<\/tr>\n
Total Revenues<\/td>\n <\/td>\n <\/td>\n$1,335<\/td>\n<\/tr>\n<\/table>\n

<\/span><\/span>