Good morning, everyone, and thank you for participating in Magnolia Oil & Gas Corporation's Fourth Quarter 2023 Earnings Conference Call. My name is Andrea 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 call 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, Andrea, and good morning, everyone. Welcome to Magnolia Oil & Gas’s fourth quarter earnings conference call. Participating on the call today are Chris Stavros, Magnolia's President and Chief Executive Officer, and Brian Corales, Senior 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 2 of the conference call slide presentation with the supplemental data on our website. You can download Magnolia's fourth 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 discussion of our fourth quarter and full year 2023 financial and operating results. I plan to briefly speak to our results which closed out a strong year for Magnolia and during which we took several actions to improve our overall business. I will also discuss our business model and our core principles in the context of some of last year's accomplishments, and note how Magnolia stacks up compared to many other EMP companies on several key financial metrics. Lastly, I will provide an update on Magnolia's 2024 capital and operating plan, which follows the same principles on which the company was founded nearly six years ago. Brian will then review our fourth quarter and full year financial results in greater detail, along with some additional first quarter guidance before we take your questions. Starting on Slide 3 of the Investor Presentation and looking at some of the highlights. Magnolia ended 2023 on a high note with fourth quarter production volumes of 85,400 barrels of oil equivalent per day, bringing full year 2023 production to 82,300 BOE per day. This represented year-over-year production growth of 16% for the fourth quarter and full year 2023 volume growth of more than 9%. Production at our Giddings asset grew 55% compared to the prior year fourth quarter, reaching 63,000 BOE per day, which included oil production growth of 59%. Giddings production represented approximately 71% of overall Magnolia volumes last year and the Giddings area continues to see operating efficiency improvements in the field, such as fewer drilling days per well and realizing significant gains in stimulation stages per day. D&C Capital totaled $91 million for the quarter and $422 million for the year, representing 47% of adjusted EBITDAX for…

Thanks, Chris, and good morning, everyone. I'll review some items from our fourth quarter and full year results and refer to the presentation found on our website. I’ll also provide some additional guidance for the first quarter of 2024 and the remainder of the year before turning it over for questions. Magnolia closed out 2023 on a high note as we continue to execute on our business model. During the fourth quarter, we generated a total net income attributable to Class A common stock of $98 million with total adjusted net income of $108 million or $0.52 per diluted share. Our adjusted EBITDAX for the quarter was $240 million with total capital associated with drilling, completions and associated facilities of $91 million or just 38% of our adjusted EBITDAX and below our guidance. For the full year, adjusted EBITDAX was $899 million with D&C capital representing 47% of EBITDAX. Fourth quarter production volumes grew 16% year-over-year to 85,400 barrels of oil equivalent per day. For the full year, production volumes grew 9% to 82,300 barrels of oil equivalent per day. During the year, we repurchased a total of 9.6 million shares and our diluted share count fell by 5% year-over-year. Looking at the annual cash flow waterfall chart on Slide 11. We started the year with $675 million of cash. Cash flow from operations before changes in working capital was $872 million, with working capital changes and other small items impacting cash by $59 million. During the year, we paid dividends of $102 million and allocated $205 million towards share repurchases. We added $355 million of bolt-on acquisitions, primarily in Giddings, and spent $425 million on D&C and facilities capital, and we ended the year with $401 million of cash. Looking at Slide 12, this chart illustrates the progress in…

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Neal Dingmann of Truist. Please go ahead.

Good morning, Chris and team. And guys, another nice print and guide. My first question is on Giddings, specifically. Can you all talk about the recent Giddings acquisitions and how these assets are looking, definitely realizing its early days? And then maybe, Chris, anything we should be thinking about on the development plan specifically there?

Yeah, thanks. Good morning. Giddings is one of those fields, old fields, that it sort of just keeps getting better. And my level of confidence now versus, say, five, six years ago is quite a bit better. And a lot of that is born out of the results, obviously, and certainly what we've learned and what we've been able to do with the field. So the subsurface, and as I said, it's one of those fields that where you -- it's gone through different phases of its life over the last several decades, and we happened to get involved really prior to it going through this latest phase in utilizing modern frac techniques and design. So where this is headed is we've got a sizable position, more than half a million acres, and we've done some recent acquisitions, and I think that's improved our position and will help us learn some more. There's some gassier areas of Giddings, there's some oilier areas of Giddings, but I think the proof is in the pudding in terms of the results having been borne out. When we picked it up with the original acquisition, the field and the asset was producing maybe 10,000 a day, equivalent or so. As I said, it's producing more than 60,000 a day now, and that will continue to grow. And this is really what the returns -- the quality returns that we've seen in the business are really, in many cases, a function of the outcome of Giddings. So where does it go? Frankly, I think there's more for us to go after here and there. I mean, some of them will be a little bit smaller, some things might be a little bit larger, like in similar terms so what we did or size what we did back in the fourth quarter of last year. We'll just have to see. I can't tell you that we'll go after everything or anything and everything, but we'll go after some things and we're starting to integrate the assets that we recently acquired. Early days look good. This particular asset happens to be a bit oilier. The wells that we plan to drill are shallower, several thousand feet shallower, as I said, a little bit oilier with the economics broadly quite similar to Giddings as a whole overall. So I remain real optimistic about our prospects going forward for the fields and what it's going to mean to Magnolia going forward.

Yeah, definitely love the footprint there. And maybe following up a little bit with Giddings. Noticeable as you pointed out the operating margins are certainly notable. And I'm just wondering when you look at the expanded Giddings results, I mean is that potentially, will that even lead to, do you think, even lower reinvestment rates? Because certainly notable how good your reinvestment rate and as you highlighted the operating margin. And I'm just wondering baked on maybe a higher Giddings plan, could we see even potential increases in this?

Yes, that's a tough one. I think the results are pretty good over three-year, five-year type period. And if you want to say it's almost through a cycle, if you will. I don't think it's going to be meaningfully different. I mean, there might be some things around the edges as we learn more, but I think the outcome, if I had to look out, I think the outcome is not going to be meaningfully different, which I will take that sort of any day of the week.

Absolutely. Thank you, all. Nice quarter.

The next question comes from Leo Mariani of MKM Partners. Please go ahead.

Hi, guys. I was hoping you could provide maybe a little bit more color on the increased activity in 2024. I think in the press release you guys alluded to the fact that be some more wells this year. Is there any way to quantify that? Is it kind of five or six wells and just kind of any detail around any of the splits here? Is it primarily more of a development drilling program? You did mention there would be some appraisals. Is it a fairly similar appraisal split versus last year? And I guess there's going to be some drilling on the newly acquired acquisition from the fourth quarter. Do you also consider that kind of appraisal drilling, and is it just a handful of wells? Any color around on the kind of complexion of the program this year versus last would be helpful.

Yeah, thanks, Leo. I think you repeated some of what I've said and answered your own question in some ways. But anyway, yeah, so we'll probably drill maybe a little more than a half dozen additional wells this year versus last year net wells. Most of that is or part of it anyway is some of the new assets that will be brought or integrated into the plan. Some is just the ongoing development in Giddings. And keep in mind that the average lateral length is a little longer in this year's program compared to last year. I would tell you also that the working interest in the wells is also a little bit higher. As far as appraisal goes, no, I wouldn't consider the drilling on the new assets as appraisal in Giddings. But there may be, depending on product prices, there may be some appraisal drilling in Giddings, just to sort of see if we can learn a little bit more around other areas. So we'll see how that goes. And so that's, by and large, some of the color, I would tell you. The Karnes program will be fairly similar to what it had been, not really very different generally.

Okay. That's helpful. And then just do you have any color you might provide on a few of the big-picture expense items? I think that perhaps the new oily asset had a little kind of higher cost. Any kind of range at all you can kind of throw out there if LOEs going to continue to tick up a little bit and maybe DD&A and maybe G&A has not really changed. Is there anything you can have high level on some of those kind of key cost items?

Yeah, sure. Well, the new assets, especially the latter acquisition that we did in Giddings, considering that it is oilier in nature. Yeah, there is a little bit more in the way of LOE, as would be common or typical and as we're also sort of bringing it up to Magnolia standards, if you will. We are owners of the assets where the prior folks might have been viewed as more renters of the assets. So there's some things that we need to do or probably will do to bring it up to our standards. However, I will tell you that my choice and my view is that we are going to pursue sort of a program to focus a little bit more on LOE broadly through the year to try to get that down a bit. So, as we transition with the new asset into the first quarter, you might see a little bit more in terms of bump in LOE, not very meaningful, frankly, but a little bit. And then my hope and view is that we're going to try to attack this and manage it to the point where we could see some decline later into the year.

Okay. That's helpful. And I guess just anything on any of the other costs, is it G&A per barrel still pretty flat, I don't know if there's any impact on GP&T from the new asset either, as that pretty ratably flat?

Not really. GP&T, actually, I think we're doing a pretty good job there and we'll see how that goes. I'll just say we're doing a good job around that. G&A, not going to change very much, frankly, at all, not meaningfully on a per barrel basis.

Yep. Okay. Thanks, guys.

Okay, thanks.

The next question comes from Charles Meade of Johnson Rice. Please go ahead.

Good morning, Chris and Brian and the rest of Magnolia team there. Chris, I'm at risk of frustrating you. I'm going to ask one more question about the -- about your activity on those recently acquired asset…

That's all right. You wouldn't be the first one.

Well, maybe I'll be the best. Presumably, I think you indicated, actually that you guys had a slightly different view of that asset, or maybe you thought you had a differential insight on that asset. And so I'm curious if you could tell us what further activity you have. Maybe you just kind of characterize the number of wells that you're going to drill, the number of the pads you're going to drill on that newly acquired asset. And if there's any aspect of your well design that's going to test perhaps some of those differentiated ideas that you have, in which case, what's kind of a timeline for any kind of results or update there?

Yeah. Thanks, Charles. It's a little early days to be too granular-specific around how we are going to drill the well or wells. There will be a handful of wells that will be drilled later this year where we'll have some results that probably through some of these data -- the data sets, you will be able to see over time. I just don't know. We're still sort of studying it and looking at prior results to see how it's gone. We may make some smallish, modest changes going forward, but we are not at the point, frankly, where these are going to be probably more single wells frankly at this stage. So we're just not quite there yet. Frankly, we closed on the deal, call it three months ago. So we're still integrating it and devising it, developing it, folding it into the plan. So it's still somewhat early days.

Okay. Well, thanks for that added detail. And then a second question. This is about A&D and the Eagle Ford more broadly. How would you characterize the opportunity set for Magnolia? And how much of your attention are you spending on looking at opportunities right around Giddings? And how much of is directed to the larger Eagle Ford? And also [indiscernible] across Texas?

Yeah, it's a fair question. Percentage of my time, pretty meaningful, I mean, because there's a lot of things out there. And again, as I said earlier, much of this is born out of our own experiences and knowledge and as we gain further understanding of the wells that we drill and directionally where we want to go and what excites us, what is more attractive for us. And I said this to folks before, at the end of the day, we are trying to -- and maybe this is why we're not overly open about what our plans are, but we're trying to build a little bit of a mosaic around the asset and fill in some of the blanks and improve the business based on some of the quality areas that we see. So we won't go after everything. It's not like I say, well, I'd like to own all the acreage everywhere. It's not that, but there are some areas that look interesting and will help us and will help the business, where I can see this enhancing the runway, if you will, and provide more sustainability for the business over time. So I think the opportunity set is reasonably good.

All right. Thanks for that.

Sure.

The next question comes from Oliver Huang of TPH & Co. Please go ahead.

Good morning, Chris and Brian, and thanks for taking my questions. Just wanted to hit on the 2024 outlook really quick. I think you all did a great job last year in being able to exceed initial expectations. CapEx 17% lower for nearly inline production volumes. And I know last year is probably a unique year, just kind of given the misalignment to start the year on service costs. But as we kind of look forward into 2024, what are some of the key levers or upside catalysts that you all foresee, or most excited about that could drive better than expected capital efficiency? And also any sort of color on what drives the lower and higher ends of the CapEx guidance range would be helpful as well.

Thanks, Oliver. I don't know how much of a disconnect there was, but we got after this early and I credit our teams both on the supply chain side and on the operations side, drilling completions and working with everyone to make it happen. But it didn't just happen. It took a lot of work talking with the vendors and creating some linkage between us and them as being true partners and we did benefit from some of the weakness in large gassier fields to the northeast of us, that where activity was slowing up and we saw some benefit from that proximity to us. But it did take a lot of work. In terms of what's left, we've locked in our costs certainly for the first half of the year. So I'm very comfortable with where things are headed in the first half of the year in terms of our outlook. For the second half of the year, it doesn't seem to me as if activity is just going to soar away higher. In fact, maybe you sort of see things flat to a little bit lower or softer, considering where gas prices are. It's not all that pleasant. And so we'll just have to see. It may provide us with a little bit of wiggle room for the back half of the year, but generally, things feel pretty good. On the specific areas or items, we did a terrific job around efficiencies last year, especially on the completion side and completion -- and stages per day. I'd like to think that we could see some improvements on the drilling side and we'll work towards that with hopefully some efficiencies and maybe something on the cost side as well, but we'll see. So I hope that gives you a little bit of color.

Yeah, that's definitely helpful. And just a quick follow-up on a comment you made earlier about potentially higher working interest in wells this year. Just wondering if there's any way to kind of quantify the magnitude of that shift, really just trying to get a sense of how the net lateral footage might have increased on a year-over-year basis?

We can get back to you and answer that more specifically.

Sounds good. Thanks for the time, guys.

Okay. Thank you.

The next question comes from Ati Modak of Goldman Sachs. Please go ahead.

Hi. Good morning, team. Thank you for taking the questions. I guess you mentioned there's still a lot of opportunity in acquisitions in the Giddings area. Just wondering if these are largely smaller acreages or are there entities that are relatively large as well. And what is the level of interest, maybe that those players have to try and replicate what you are doing versus hand the asset over to you? And does that mean that you would be more active in M&A this year versus last?

I don't know what the other operators are looking to do or willing to do or able to do, frankly, if they're looking to replicate our plan or whatever. I wouldn't think that this is necessarily going to be a more active year than what we just had in 2023. We are going to -- our plan is to digest and integrate some of what we've done last year, which was overall a bit of a heavier year in deal-related activity for us, acquisitions. So there is some digestion and integration that needs to occur. So I think if there are some things, they'll tend to be a bit smaller, but may hopefully pack a punch. And really, again, as I said, fill in that mosaic of what we've been trying to accomplish in recent history and going forward. So I don't think it's going to be larger, at least that's not my sense right now.

Got it. And then anything around the expectations for well productivity in '24 versus the prior years? If you can talk about oil per foot basis, how should we think about the trends this year?

Yeah, I mean that's been talked about, to be honest, and it's sort of an evolution of the program in Giddings over time. I mean early days, there were -- the population set of wells was smaller, obviously, and much more focused and concentrated within a very, very limited area. And as that's broadened out, there may have been some movement around the productivity, but frankly, not in a major way or a terrible way. I think that this year's program and results should yield similar results to what you saw in '23. I don't see any major change, frankly.

Got it. Thank you for taking the questions. I will turn it over.

Okay, thanks.

The next question comes from Nicholas Pope of Seaport Research. Please go ahead.

Good morning, everyone.

Hi, Nick.

A quick question on the reserves details that you provided in the presentation. The price-related revisions, just wanted to make sure, is that -- is there anything specific there, or is that kind of balanced across the two assets? Is it just the tail of some of those PDP reserves coming off? Just trying to make sure, I understand that $15 million kind of hit the [indiscernible] there.

Yeah. And when you roll forward from last year, which had significantly higher pricing, you do lose reserves. So the year-over-year change in the SEC required pricing was relatively significant both oil and gas.

So it's across both assets.

It's both assets. It's both assets. But I mean, just remember, I think we're at 75% plus of our, or 75% of our production is Giddings. So it's probably proportionate.

And on the Giddings acquisition, can you be a little more specific, about what was the timing of the close of that acquisition?

It was right around mid-November.

Yeah. Okay. That's all I had. Thanks.

Okay. Thanks.

The next question comes from Geoff Jay of Daniel Energy Partners. Please go ahead.

Hey, guys. I was just kind of curious, you talk about the efficiency gains, particularly on the completion side. Can you help understand -- help me understand, I guess like, how significant that increase is? And if you've sort of looked around and benchmarked that against your peers, and if you think there's further efficiencies to come this year?

We're looking into that now. I mean we are going through that process right now as we look to the latter portion, or trying to think ahead into the back half of the year on our equipment and cruise, I don't know how much I can really add on that specific item for you, Jay -- Geoff, I just don't know.

And Geoff, if -- I'll just maybe add one thing, and Chris talked about a little bit, is we did a really, really good job on stages per day on the completion side. One of the focus is on -- more for this year is on the drilling side to improve more of those efficiencies.

Right. Got it. I guess when I saw in the press release that the cost of Giddings, well costs were down about 20%. And my curiosity was piqued about sort of how that might sort of break down between efficiency gains and sort of pricing. And I don't know if you can -- if there was a way to you can kind of help me understand the interplay there.

Well, a lot of it was, as you know, a lot of it was steel OCTG, but there was -- there were meaningful steps in stem and frac. So there are meaningful benefits there as well.

Excellent. Thank you.

The next question comes from Zach Parham of JPMorgan. Please go ahead.

Yes, thanks for taking my question. I guess first just could you quantify where your leading edge D&C costs are in Giddings? And maybe give us some color on how much cheaper you expect the wells to be on the newly acquired shallower acreage?

Yeah, the wells now are running about 1,100 a foot I would say. And that's about 20% lower than a year ago. And so that -- for the longer -- some of the longer laterals that we'll drill this year, that's maybe $9 million roughly per well. The well costs for the newer stuff, yeah as I said, they're shallower, quite a bit shallower, 3000, 4000 feet shallower. But you don't get the exact efficiencies of pad development too. So, that's sort of what I know right now.

And Zach let's -- we need to drill one first before we can give you a better answer. But it is shallower, so on a per foot, it should be a little cheaper.

Got it. Thanks for that color, I guess also wanted to ask on natural gas. Gas differentials have widened out a bit versus both Henry hub and Ship Channel over the last couple of quarters. We've also heard some concerns on Ship Channel widening out further given increasing Permian volumes flow into the Gulf. Can you just give us your thoughts on how you expect gas differentials to trend in '24 and going forward?

Yeah. To be honest, I mean, all our gas goes to Ship Channel. We are a price taker. I still think it's the second probably best hub outside of Henry Hub to deliver your gas. We're closer to market than the Permian. We have all the infrastructure we need. Is gas in general challenged? Yes.

Zach, it's going to be interesting to really see how this evolves in the market. You've probably seen already some of the comments from some of the independent producers, the gassier producers here, maybe reducing their activity a bit. And so this is a market and the operators will respond to the economics. So it will be interesting to see that response and to the extent that things are pulled in, that may over time bring things into better balance. So we'll see.

Got it. Thanks, Chris. Thanks, Brian.

The next question comes from Tim Rezvan of KeyBanc Capital Markets. Please go ahead.

Good morning, guys. Thanks for squeezing me in. I'd like to start on repurchases first. Just trying to understand if we sort of back into like a repurchase amount based on your 1Q shares outstanding kind of information, it suggests maybe a little lower than that $50 million-ish range that you've run. Do you think about it as not wanting to have a free cash flow deficit in the quarter? Just trying to understand, kind of, you've been pretty methodical with the repurchases. Is anything changing, or is it just because of heavy first quarter CapEx that maybe you're pulling back a bit?

Well, we are not forecasting the share repurchases, really. I mean, I think, if I recall, I think we bought in 2.5 million shares exactly in the fourth quarter, and I think that was about the same, if not exactly the same, as the third quarter. So sequentially, the amount of shares repurchased was the same. The dollar amount might have been a little different because the shares might have been bought in a little bit less expensively, which is fine. I look at the share repurchase, I mean, just a broad comment. I look at the share repurchase program is sort of ongoing and opportunistic, and there might be some shares that come available in the market, and not that I know anything, but if that were to happen, we could certainly lean in. If I feel as if there's a disconnect in terms of perceived value, we could lean in. The share repurchase and the dividend are sort of symbiotic in a way. There's an integral relationship for us with that. The more shares I buy in, the more it supports our dividend payout per share capacity. So that's sort of how I think about it.

Okay. If you do the math on that 205 million for the first quarter, it seemed a little light. That's why I was just trying to understand if there's something there, and I guess there's not. So thanks, Chris. I appreciate that. And as my follow-up, I thought it was interesting you said you should have a similar oil cut going through 2024. If we look at the Giddings asset in general, you've seen oil cuts, call it kind of mid-30s. Is your confidence that you have enough well control in Giddings that you're confident of the oil views you're going to be getting from the 2024 program? Is that what sort of gives you confidence in sort of that oil cut staying where it is?

Yeah. No, Tim, thanks. I'm pretty confident with this year's program on the oil volumes if you will. I think we ran in the 41%, 42% mix of oil for the fourth quarter right in that range. If I had to take a view, I think it'll be somewhat similar through the year. Maybe a little movement, but not all that much. The oil volumes, they'll grow, as I said, they'll grow year-on-year for each quarter, and they'll grow on a similar basis to the overall BOE volume. So I'm pretty confident with that. That's what the program is designed to deliver, and it's just in terms of the well control and the confidence in Giddings. Yes, that's how I feel.

Okay. Thank you.

The next question comes from Paul Diamond of Citi. Please go ahead.

Thank you. Good morning. Thanks for taking my call. Just one quick one for you. As you guys think about Giddings going forward, as far as just the addressable -- total addressable acreage and kind of your progress to that, what you see as the right size level you want to be at? Or is that something we should think about as like a single-year effort, or is that more kind of multi-year goal?

I see this evolving over the years. I don't see it necessarily all occurring at once or in a shorter term. The amount of learning that we picked up and experience has been over this five, six-year period, it's not all going to come at once here for us as a result. So we are still -- we have a large position that will -- where we'll continue to learn through our own activity and as an extension of that, we could and likely will pursue some other small opportunities that make sense.

Understood. And do you think those smaller opportunities are more kind of blocking out existing acreage? Or are there more kind of further flung areas that you guys are really interested in exploring up there?

Mainly the former filling in.

Understood. I'll leave it there. Thanks for your time.

Okay. Thank you.

This concludes our question-and-answer session. The conference has now also concluded. Thank you for attending today's presentation, and you may now disconnect.