Good morning, everyone, and thank you for participating in Magnolia Oil & Gas Corporation's Second Quarter 2024 Earnings Conference Call. My name is Megan, and I will be your moderator for today's call. [Operator Instructions] 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.

Thank you, Megan, and good morning, everyone. Welcome to Magnolia Oil & Gas' second 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 two of the conference call slide presentation with the supplemental data on our website. You can download Magnolia's second quarter 2024 earnings press release as well as the conference call slides from the Investors section of the company's website at www.magnoliaoilgas.com. I will now turn the call over to Mr. Chris Stavros.

Thanks, Tom, and good morning, everyone. We appreciate you joining us today for a discussion of our second quarter 2024 financial and operating results. I will provide some comments on our quarterly results, which demonstrate the continued execution of our full year 2024 plan and consistency of our business model. I'll also briefly discuss a smooth integration of our recent bolt-on acquisition in Giddings, and provide an update on the progress of our field-level cost reduction initiatives, which have shown some positive early results. Brian will then review our second quarter financial results in greater detail and provide some additional guidance before we take your questions. As a reminder, Magnolia's primary goals and objectives are to be the most efficient operator of best-in-class oil and gas assets, generate the highest returns on those assets while employing the least amount of capital for drilling and completing wells. We also strive to return a substantial portion of our free cash flow to our shareholders in the form of share repurchases and a secure and growing dividend. Finally, we plan to utilize some of the excess cash generated by the business to pursue attractive bolt-on oil and gas property acquisitions, where we have a competitive advantage and leveraging both our technical knowledge and experience in basin. Acquisitions are targeted not to simply replace the oil and gas that has already been produced, but importantly, to improve the opportunity set of our overall business, enhance the ongoing sustainability of our high returns and increase our dividend per share payout capacity. We look for acquisition opportunities to provide upside optionality with a lower cost of entry that are both financially accretive and also accretive to our stock. Looking at Slide three of the investor presentation, Magnolia continues to execute on our business model, delivering strong…

Thanks, Chris, and good morning, everyone. I will review some items from our second quarter results and refer to the presentation slides found on our website. I'll also provide some additional guidance for the third quarter of 2024 and the remainder of the year before turning it over for questions. Beginning on Slide 5, and as Chris discussed, Magnolia had a strong second quarter. During the quarter, we generated total GAAP net income attributable to Class A common stock of $96 million with total adjusted net income of $104 million or $0.52 per diluted share. Our adjusted EBITDAX for the quarter was $246 million, with total CapEx associated with drilling, completions and associated facilities of $123 million or 50% of our adjusted EBITDAX. Second quarter total production volumes grew 10% year-over-year to 90,200 barrels of oil equivalent per day, driven by our Giddings asset. And our diluted share count fell by 5% year-over-year to 201.2 million shares. Looking at the quarterly cash flow waterfall chart on Slide 6. We started the quarter with $399 million of cash. Cash flow from operations before changing -- changes in working capital for the second quarter was $233 million, with working capital changes in other small items, increasing cash by $27 million. We paid dividends of $27 million and allocated $106 million towards share repurchases in addition to $124 million of bolt-on acquisitions. Total capital incurred, including leasehold was $126 million, ending the quarter with $276 million of cash. Looking at Slide 7. This chart illustrates the progress in reducing our total share -- total outstanding shares since we began our repurchase program in the second half of '19. Since that time, we have repurchased 68.3 million shares, leading to a decrease in diluted shares outstanding of approximately 22%. Magnolia's weighted average fully diluted…

[Operator Instructions] Our first question comes from Neal Dingmann with SunTrust. Please go ahead.

Hi guys. Nice results. Guys, my first question is on the Giddings development. Certainly, you sounded more confident now we're talking about over 200,000 net development acres. I'm just wondering, can you talk about what you see as far as -- is there much variability among this acreage? And is there -- Chris, wondering if there's much white space in that area that you could still add?

Yes. Thanks, Neal. The answer is that Giddings generally, there is some -- always some variability. Giddings north is different from Giddings south; Giddings east is different from Giddings west. But within our core development area, if you will, which this is a part of the variability tends to be far less. And I wouldn't expect to see much of that here. And yes, I think there are more things to add with time. And I think it's fair, probably for me to give you or maybe expand a little bit on what I said in my remarks, but give you maybe a real-life example of sort of how this has come about and how other things come about within the expanded development area. So half of the increase in the development acreage that we cited came from the bolt-on acquisition, while the other half came from success out of the appraisal program. As I mentioned in my remarks, I mean, simply adding to our assessment and view of the development acreage, it's a long journey. And it doesn't simply happen overnight. So I'll try to give you this real life example of how -- sort of how it works, at least for us. So in late 2021, maybe early 2022, we drilled one or two appraisal wells outside of our then development area in Giddings. Our evaluation confirmed positive results. Later in 2022, we closed on an acquisition in this area, accumulating a reasonable position where we drilled a very successful pad earlier this year. And so our efforts around this are ongoing. We've accumulated a significant acreage position with plenty to work on and we continue to do appraisal activity each year as part of that drilling program, but the process can take a couple of years to play out, and it continues to be gradual and measured for us. So it can often lead to things that we see through appraisal and we may acquire additional acreage to expand on that. We've done that with some success. And I would expect that we'll continue to follow a similar process with time.

Great details. And my second question, just on the reinvestment rate. I guess, going forward, do you anticipate it looks like that continues to be quite low. Do you anticipate the capital return changing?

Yes. So it's interesting. I mean -- so we just passed our sixth year anniversary. And over the 6 years, our reinvestment rate has been 47%. Our ceiling is sort of 55%. This is really the crux of the business model. This discipline is really the foundation of the business model for Magnolia, which delivers moderate growth and a lot of free cash flow. So I would expect to see nothing really very different as part of the plan, the remainder of this year and into next year.

Our next question comes from Phillips Johnston with Capital One. Please go ahead.

Hey, thanks for the question. I think you guys get asked about oil mix every quarter, so I thought I'd keep the streak alive. Chris, you mentioned that your oil volumes should remain pretty resilient throughout the year. And I think in the past, you've said the oil mix should continue to be a bit lumpy just from quarter-to-quarter. But I just wanted to check in to see if we should be aware of any trends or nuances over the next few quarters.

Not necessarily. I'm pleased that the mix has been fairly steady and the overall oil production has been pretty steady and resilient. Some acquisitions that we've done and our activity program certainly for this year has been a little bit oilier. And so that's allowed things to hold up, I think, pretty well. As you can see, our Giddings activity is a high proportion of our overall activity. And so Giddings generally is a little less oily than the rest of the company, but it sort of depends how we drill. I wouldn't necessarily steer you in one direction. But I think for now, oil should hold up, the production on oil should hold up pretty well for the remainder of the year and I think into next year as well.

Okay. That's really helpful. It's early, obviously, on 2025, but for now, should we just assume a pretty steady program at sort of that two rigs, one frac spread pace? And I guess, is there anything to keep in mind in terms of geographic mix shift or working interest or anything that sort of might affect the pace of growth either faster or slower?

No, I think it's pretty steady just in terms of the two operated rigs and the one frac spread. So that -- I would expect that, that wouldn't change. Our cycle times continue to improve. We're getting more in the way of drilling efficiencies. We'll -- as I said in the earlier question or response, we'll continue to look at some appraisal opportunities later this year and into next to see where that takes us. But I don't anticipate any significant or major changes or differences.

Our next question comes from Zach Parham with JPMorgan. Please go ahead.

Good morning. I just wanted to ask on cash return first. EnerVest sold down some stock this past quarter and now don't have a lot left. Once they're completely out of the stock, does that change your cash return methodology at all? Do you consider buying more stock in the open market? Just curious on how you think about that.

Yes. I'll have to think about that a little bit just in terms of pivoting one way or another. And on the share repurchases, I mean, to be quite frank, we certainly are a little sensitive to the share price to some degree. We sort of have to be prudence would dictate that. But just in terms of giving you a little sense of how I think about it and maybe I think about it a little differently. I do believe that having a consistent and ongoing share repurchase program for Magnolia is important, certainly, at least for Magnolia. I have a lot of personal confidence in buying the shares because I know exactly what I'm buying. In addition, there's been a tremendous cumulative benefit to repurchasing our shares over the past five years. So as an example, the 60 million-plus shares that we repurchased since 2019 has improved our per share earnings by 30%, or about $0.50 a share. So if we trade at roughly 12x earnings, that represents $6 a share of value in the stock, and that's sort of how I think about it to some extent or I can't ignore that. So as we continue to buy in the shares, the program, it's also creating greater value for all the remaining shareholders. So purchases has created some scarcity in the shares, if you will. So when we were added to the S&P SmallCap 600 Index this year, and when that happened, the folks that run those indexes, they probably weren't distinguishing between the stock at '25 or '26. They just added the shares, and they created more demand for what's relatively scarce share. So I've got to think about all these things in how we approach the share repurchase program. And I think that's -- these are a couple of the reasons why I think doing this on an ongoing basis can add value to the stock over time. But the dividend, the consistent growing base dividend grows out of the business model, the execution on the business model. So as we continue to grow our production, which we call sort of mid-single digits over time, and we continue to buy in the shares, call it, 1% every quarter, thereabouts. That provides the greater ability to grow the dividend on a per share basis over time, the payout capacity, if you will. So that's sort of how I think about it.

And then my follow-up just on the '24 CapEx guidance. You've got 3Q out there now. And to hit the midpoint of the guidance range, you'd have to have a decent step down in spending in 4Q. Is that the plan? Is there a frac holiday or some slowdown in activity plan? Just curious on how you're thinking about activity going into the back half of the year.

Yes. I wouldn't describe it as any frac holiday, not that I can see. I mean, the spending each quarter can be a little bit lumpy depending on timing completions as well as the timing of non-op activity. But I think it's fair to say that we expect to be in the upper half of the full year guidance range for capital this year. Most recently, we had some additional non-op activity come into the program and some of that's expected to get folded into activity later in the year. It should, I think, positively impact production early into 2025. We also continue to experience efficiencies in drilling and completion. So as I said earlier, that's improved our cycle times. And so we're essentially going faster, all of which has created a little bit of an upward bias to our capital, but not necessarily in a bad way. It's still inside the guidance range, but I think just at the higher end.

Our next question comes from Carlos Escalante with Wolfe Research. Please go ahead.

Hey, good morning, gentlemen. Thank you for taking my call. Chris, I know it's not in your DNA to talk about specific locations or inventory debt. But I'd like to take a stab at it because you provided some remarks in the past that in light of the recent expansion to -- of getting to 200,000 net acres, it's worth revisiting. So if I use your comment as a proxy where you've outlined that the 27,000 net acres that you acquired recently are equivalent to roughly a couple of years in inventory. If I reverse engineer that number to 2,000 net acres, that's directionally and again, I know you're reticent to provide specific locations. Would it be fair to assume or think that your Giddings program has north of 700 locations.

Yes. I like the way you think, Carlos. But I mean, you're certainly right about one thing. It's -- this whole conversation is sort of not in my bones. So directionally, you're moving in the right direction, but extrapolating that necessarily in the exact same manner. I don't know if I would do that in the precise same way, because in different basins, I would tell you probably, similarly, every acre is not necessarily created equal and a lot can depend on a variety of variables and attributes. So directionally, you're right, but I'm not going to start arm-wrestling you over precise numbers or anything like that.

No, I wasn't expecting you to do that either way, but I didn't take my shot at it. And then my follow-up would be on, you mentioned the non-op, obviously, towards the end of the year, you have itself there on capital that you will see production from that non-op allocation come back, come online in 2025, early '25. Can we have a sense of what a ratable amount of any non-op Magnolia plans you have going forward?

Yes. This one is a hard call because we don't get a lot of forward information on a very timely basis. I mean, sometimes we get these things 30 to 60 days out. So it's hard to say. It feels like there is a little bit of an uptick, like I suggested for the back half of the year and for the latter part of the year that should influence the capital and volumes later. But right now, to give you a full sense of what 2025 might look like. It's just too early. I just don't know. If I had a guess, it doesn't feel dramatically different than what we're seeing broadly for full year '23 or '24, which was on the lower side. That could change, but we haven't gotten any strong indication that's changing for a longer term or into next year again just yet.

Our next question comes from Oliver Huang with Tudor, Pickering, Holt.

Just wanted to start off with a follow-up to Neal's initial question on Giddings. Just with the additional acreage you all gained enough confidence to add into your core development area, just kind of given how these acres previously sat in the appraisal bucket, should we expect it to now drive a slightly higher allocation when thinking about how the drilling schedule might look going forward?

If you're asking, are we going to increasingly be shifting more to Giddings, I wouldn't necessarily go there as a result of what's happening because of the appraisal program. This is all just part of how we think about the overall pool of assets and the allocation of the money, and we'll continue to sort of occasionally flip back to Karnes and drill some pads through a year. But no, I think when you're talking about allocating about roughly 80% of the money and activity towards Giddings, that fields for right now about what it will look like.

Okay. And just kind of to clarify for within Giddings, just kind of given how this, I guess, incremental 25,000 net acres that's getting added to the core development bucket. Could we see a higher allocation when you're kind of looking at it from a Giddings stand-alone basis?

I mean, maybe, I -- we haven't laid out the exact program yet for 2025, but perhaps, I mean, it's a large -- a couple of hundred thousand acres plus is a large area. And so we -- there's a lot of things that we take into consideration when we look at planning and scheduling wells and where we'll drill exactly. But I would say we consider this all now a part of Giddings and we can tend to hop to different areas from time to time. And that's typically what a program does look like during the year. We hop to different areas around the 200,000 acres. We don't sort of proceed in any overly logical fashion that you might imagine. It just goes sort of back and forth for different reasons. And we'll continue to have some additional appraisal drilling as well that will likely bear out some additional opportunities.

Okay. That makes sense. And for my second question, I just wanted to kind of touch on cost reductions. I know you all have done a solid job across the board on that front, tackling the completion side last year, drilling side this year and even the LOE reduction program this past quarter. And I know the team is always very focused on managing costs. I don't want to get too far ahead of ourselves, but just kind of wondering what you all might be looking at next to squeeze more out of the system when we're kind of looking ahead.

Sure. Yes. Look, the quick wins, if you will, that I think we achieved, remember, some of the increases in LOE that we saw late last year and very early this year, did come out as a result of some of the acquisitions that we had done that were a bit oilier, and so that led to a little bit of higher LOE. So some of the gains that we realized now here recently came from this workover optimization, improving the utilization of some field equipments, that included compressors and cooling units. In my remarks, I also mentioned this implementation of a field level data management platform. And this -- I can't really say enough about this, but this tool can help us reduce spending and increase actual control over field services such as contract labor, trucking as examples. And it really digitize this procure-to-pay process. And so we've also implemented this platform now over broader hauling in Giddings. So going forward, we plan to expand this to things like roustabout crews, oil hauling and for most of the other field services that we use. So the whole initiative around cost reduction, that will continue and other areas that will push on include pursuing bids for processes for certain materials and equipment. But like you said, we've made some strong early progress. I don't want to get too much ahead of ourselves on forecasting further large significant gains as there's always items that can pop up and arise in the field. So I want to be mindful -- continually mindful of safety. This is always our first priority for us while we're always looking to improve. I would say that at least maintaining these levels is probably fair for forecasting going forward right now. But I'm proud of the guys and the progress that the field teams have made, and they've really done a terrific job embracing the whole initiative. So it's going well.

Our next question comes from Noah Hungness with Bank of America. Please go ahead.

Morning, all. I just wanted to first ask about the -- your guys' appraisal programs. Earlier this year, you all mentioned that you were planning to drill an appraisal well in Northern Giddings that was targeting an oilier formation. Could you give us any update there?

Sure. Yes. I don't know if we can't recall actually pointing out an appraisal well in Northern Giddings. I mean, Giddings in the north or part of Giddings in the northern area was part of an acquisition that we had done later last year. There's -- as part of our plan, we do have a modest amount of activity on some of these earlier acquired assets, and they've been integrated into our overall development plan and broader Giddings position. But there's -- I can't tell you that there's specifically a lot of appraisal work going on there right now. There may be over time, but there's nothing that I have to say exactly about that area in terms of appraisal right now.

Okay. Good. And then for my second question, I just wanted to ask on cash taxes. You all mentioned 9% to 10% for this year. Is that a good assumption moving forward as well into '25 and beyond?

Yes. For this year, it's fine. It's so dependent, Noah, on product prices, very sensitive to that. So in this sort of range, if this is what you're looking at just in terms of strip prices, it's probably fair for next year, going out beyond that, I don't want to get too ahead of ourselves. But for next year, I think it's about right.

Our next question comes from Paul Diamond with Citi. Please go ahead.

Good morning. Thanks for taking the time.Just a quick one on the kind of portending of the bolt-on acquisition. So you think across Fayette, Washington and Louis, where do you see the biggest opportunity set more blocking out down at Fayette like this recent deal did? Or is it more disparate and kind of all over the place?

It could be in a variety of different places. I'd rather not get overly specific by county or area. But again, I kind of described the process that we go through when we do some appraisal work and oftentimes some things that we see on the land side or the acquisition opportunity side can come out of that. I'd rather not get too specific on a call just in terms of what we're focusing on or looking at, it is competitive out there. But fair to say that the areas you mentioned are all fair game for opportunities and others.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.