10-Q 1 mgy-20220930.htm 10-Q mgy-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 001-38083
Magnolia Oil & Gas Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware81-5365682
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Nine Greenway Plaza, Suite 1300
77046
Houston,
Texas
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (713) 842-9050
Securities registered pursuant to section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.0001MGYNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of October 31, 2022, there were 187,488,487 shares of Class A Common Stock, $0.0001 par value per share, and 28,710,432 shares of Class B Common Stock, $0.0001 par value per share, outstanding.



GLOSSARY OF CERTAIN TERMS AND CONVENTIONS USED HEREIN

The following are definitions of certain other terms and conventions that are used in this Quarterly Report on Form 10-Q:

The “Company” or “Magnolia.” Magnolia Oil & Gas Corporation (either individually or together with its consolidated subsidiaries, as the context requires, including Magnolia Intermediate, Magnolia LLC, Magnolia Operating, and Magnolia Oil & Gas Finance Corp.).

“Magnolia Intermediate.” Magnolia Oil & Gas Intermediate LLC.

“Magnolia LLC.” Magnolia Oil & Gas Parent LLC.

“Magnolia LLC Units.” Units representing limited liability company interests in Magnolia LLC.

“Magnolia Operating.” Magnolia Oil & Gas Operating LLC.

“EnerVest.” EnerVest, Ltd.

“Karnes County Assets.” Certain right, title, and interest in certain oil and natural gas assets located primarily in the Karnes County portion of the Eagle Ford Shale formation in South Texas.

“Giddings Assets.” Certain right, title, and interest in certain oil and natural gas assets located primarily in the Giddings area of the Austin Chalk formation.

“Business Combination.” The acquisition, which closed on July 31, 2018, of the Karnes County Assets; the Giddings Assets; and a 35% membership interest in Ironwood Eagle Ford Midstream, LLC.

“Class A Common Stock.” Magnolia’s Class A Common Stock, par value $0.0001 per share.

“Class B Common Stock.” Magnolia’s Class B Common Stock, par value $0.0001 per share.

“Issuers.” Magnolia Operating and Magnolia Oil & Gas Finance Corp., a wholly owned subsidiary of Magnolia Operating, as it relates to the 2026 Senior Notes.

“Magnolia LLC Unit Holders.” EnerVest Energy Institutional Fund XIV-A, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIV-WIC, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIV-2A, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIV-3A, L.P., a Delaware limited partnership, and EnerVest Energy Institutional Fund XIV-C-AIV, L.P., a Delaware limited partnership.

“RBL Facility.” Senior secured reserve-based revolving credit facility.

“2026 Senior Notes.” 6.0% Senior Notes due 2026.

“Services Agreement.” That certain Services Agreement, as amended, dated as of July 31, 2018, by and between the Company, Magnolia Operating, and EnerVest Operating, L.L.C. (“EVOC”), pursuant to which EVOC provided certain services to the Company.

“Stockholder Agreement.” The Stockholder Agreement, dated as of July 31, 2018, by and between the Company and the other parties thereto.

“Non-Compete.” That certain Non-Competition Agreement, dated July 31, 2018, between the Company and EnerVest, pursuant to which EnerVest and certain of its affiliates were restricted from competing with the Company in certain counties comprising the Eagle Ford Shale.

“OPEC.” The Organization of the Petroleum Exporting Countries.



Table of Contents






PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Magnolia Oil & Gas Corporation
Consolidated Balance Sheets
(In thousands)
September 30, 2022December 31, 2021
ASSETS(Unaudited)(Audited)
CURRENT ASSETS
Cash and cash equivalents
$689,539 $366,982 
Accounts receivable
207,718 149,769 
Drilling advances
1,092 615 
Other current assets
611 552 
Total current assets898,960 517,918 
PROPERTY, PLANT AND EQUIPMENT
Oil and natural gas properties2,718,433 2,381,812 
Other8,554 7,036 
Accumulated depreciation, depletion and amortization(1,352,138)(1,172,761)
Total property, plant and equipment, net1,374,849 1,216,087 
OTHER ASSETS
Deferred financing costs, net6,090 3,701 
Other long-term assets20,737 9,036 
Total other assets26,827 12,737 
TOTAL ASSETS$2,300,636 $1,746,742 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable$214,609 $127,909 
Other current liabilities (Note 7)
127,363 90,636 
Total current liabilities341,972 218,545 
LONG-TERM LIABILITIES
Long-term debt, net389,794 388,087 
Asset retirement obligations, net of current92,652 89,715 
Other long-term liabilities6,512 5,146 
Total long-term liabilities488,958 482,948 
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS’ EQUITY
Class A Common Stock, $0.0001 par value, 1,300,000 shares authorized, 208,758 shares issued and 187,474 shares outstanding in 2022 and 193,437 shares issued and 179,270 shares outstanding in 2021
21 19 
Class B Common Stock, $0.0001 par value, 225,000 shares authorized, 28,710 shares issued and outstanding in 2022 and 49,293 shares issued and outstanding in 2021
3 5 
Additional paid-in capital1,637,279 1,689,500 
Treasury Stock, at cost, 21,283 shares and 14,168 shares in 2022 and 2021, respectively
(320,204)(164,599)
Accumulated deficit(46,069)(708,168)
Noncontrolling interest198,676 228,492 
      Total equity1,469,706 1,045,249 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$2,300,636 $1,746,742 

The accompanying notes are an integral part to these consolidated financial statements.
1


Magnolia Oil & Gas Corporation
Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
Three Months EndedNine Months Ended
September 30, 2022September 30, 2021September 30, 2022September 30, 2021
REVENUES
Oil revenues$317,243 $195,642 $912,702 $531,300 
Natural gas revenues100,124 43,781 242,049 112,758 
Natural gas liquids revenues65,596 45,619 190,700 102,140 
Total revenues482,963 285,042 1,345,451 746,198 
OPERATING EXPENSES
Lease operating expenses34,709 23,593 96,057 64,957 
Gathering, transportation and processing19,297 11,540 51,518 32,069 
Taxes other than income26,623 14,082 74,917 38,657 
Exploration expenses1,173 317 10,119 2,440 
Asset retirement obligations accretion814 1,329 2,404 4,065 
Depreciation, depletion and amortization68,972 47,993 179,331 134,268 
Amortization of intangible assets   9,346 
General and administrative expenses19,625 14,695 55,226 59,816 
Total operating expenses171,213 113,549 469,572 345,618 
OPERATING INCOME311,750 171,493 875,879 400,580 
OTHER INCOME (EXPENSE)
Interest expense, net(5,263)(7,474)(21,637)(23,519)
Loss on derivatives, net (623) (3,110)
Other income (expense), net(166)142 6,579 48 
Total other expense, net(5,429)(7,955)(15,058)(26,581)
INCOME BEFORE INCOME TAXES306,321 163,538 860,821 373,999 
Income tax expense19,358 3,631 65,333 6,428 
NET INCOME286,963 159,907 795,488 367,571 
LESS: Net income attributable to noncontrolling interest41,486 40,543 133,389 100,518 
NET INCOME ATTRIBUTABLE TO CLASS A COMMON STOCK$245,477 $119,364 $662,099 $267,053 
NET INCOME PER SHARE OF CLASS A COMMON STOCK
Basic$1.29 $0.68 $3.52 $1.54 
Diluted$1.29 $0.67 $3.51 $1.53 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic188,635 174,764 186,475 172,281 
Diluted189,074 175,683 186,967 173,280 

The accompanying notes are an integral part of these consolidated financial statements.
2


Magnolia Oil & Gas Corporation
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(In thousands)
Class A
Common Stock
Class B
Common Stock
Additional Paid In CapitalTreasury StockAccumulated DeficitTotal Stockholders’ EquityNoncontrolling InterestTotal
Equity
For the Three Months Ended September 30, 2021SharesValueSharesValueSharesValue
Balance, June 30, 2021184,800 $18 60,524 $6 $1,684,579 9,473 $(83,286)$(977,761)$623,556 $219,100 $842,656 
Stock based compensation expense, net of forfeitures— — — — 2,180 — — — 2,180 730 2,910 
Changes in ownership interest adjustment— — — — (5,373)— — — (5,373)5,373  
Common stock issued related to stock based compensation and other, net219 — — — (1,345)— — — (1,345)(449)(1,794)
Class A Common Stock repurchases— — — — — 1,995 (29,510)— (29,510)— (29,510)
Class B Common Stock purchase and cancellation— — (3,000)— — — — — — (49,140)(49,140)
Conversion of Class B Common Stock to Class A Common Stock4,608 1 (4,608)(1)— — — — — —  
Dividends declared ($0.08 per share)
— — — — (14,236)— — — (14,236)— (14,236)
Distributions to noncontrolling interest owners— — — — — — — — — (5,276)(5,276)
Net income— — — — — — — 119,364 119,364 40,543 159,907 
Balance, September 30, 2021189,627 $19 52,916 $5 $1,665,805 11,468 $(112,796)$(858,397)$694,636 $210,881 $905,517 
For the Three Months Ended September 30, 2022
Balance, June 30, 2022208,729 $21 28,710 $3 $1,647,637 18,283 $(257,837)$(291,546)$1,098,278 $170,279 $1,268,557 
Stock based compensation expense, net of forfeitures— — — — 3,004 — — — 3,004 458 3,462 
Changes in ownership interest adjustment— — — — 5,914 — — — 5,914 (5,914) 
Common stock issued related to stock based compensation and other, net 29 — — — (164)— — — (164)(25)(189)
Class A Common Stock repurchases— — — — — 3,000 (62,367)— (62,367)— (62,367)
Dividends declared ($0.10 per share)
— — — — (19,112)— — — (19,112)— (19,112)
Distributions to noncontrolling interest owners— — — — — — — — — (7,608)(7,608)
Net income— — — — — — — 245,477 245,477 41,486 286,963 
Balance, September 30, 2022
208,758 $21 28,710 $3 $1,637,279 21,283 $(320,204)$(46,069)$1,271,030 $198,676 $1,469,706 

The accompanying notes are an integral part to these consolidated financial statements.
3


Magnolia Oil & Gas Corporation
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(In thousands)
Class A
Common Stock
Class B
Common Stock
Additional Paid In CapitalTreasury StockAccumulated DeficitTotal Stockholders’ EquityNoncontrolling InterestTotal
Equity
For the Nine Months Ended September 30, 2021
SharesValueSharesValueSharesValue
Balance, December 31, 2020168,755 $17 85,790 $9 $1,712,544 5,475 $(38,958)$(1,125,450)$548,162 $291,260 $839,422 
Stock based compensation expense, net of forfeitures— — — — 6,592 — — — 6,592 2,551 9,143 
Changes in ownership interest adjustment— — — — (7,111)— — — (7,111)7,111  
Common stock issued related to stock based compensation and other, net 623 — — — (2,228)— — — (2,228)(866)(3,094)
Class A Common Stock repurchases— — — — — 5,993 (73,838)— (73,838)— (73,838)
Class B Common Stock purchase and cancellation— — (13,000)(2)2 — — — — (171,671)(171,671)
Non-compete settlement375 — — — (29,758)— — — (29,758)(12,316)(42,074)
Conversion of Class B Common Stock to Class A Common Stock19,874 2 (19,874)(2)— — — — — —  
Dividends declared ($0.08 per share)
— — — — (14,236)— — — (14,236)— (14,236)
Distributions to noncontrolling interest owners— — — — — — — — — (5,706)(5,706)
Net income— — — — — — — 267,053 267,053 100,518 367,571 
Balance, September 30, 2021189,627 $19 52,916 $5 $1,665,805 11,468 $(112,796)$(858,397)$694,636 $210,881 $905,517 
For the Nine Months Ended September 30, 2022
Balance, December 31, 2021193,437 $19 49,293 $5 $1,689,500 14,168 $(164,599)$(708,168)$816,757 $228,492 $1,045,249 
Stock based compensation expense, net of forfeitures— — — — 8,353 — — — 8,353 1,511 9,864 
Changes in ownership interest adjustment— — — — 1,013 — — — 1,013 (1,013) 
Common stock issued related to stock based compensation and other, net 688 — — — (5,192)— — — (5,192)(1,098)(6,290)
Class A Common Stock repurchases— — — — — 7,115 (155,605)— (155,605)— (155,605)
Class B Common Stock purchase and cancellation— — (5,950)— — — — — — (138,753)(138,753)
Conversion of Class B Common Stock to Class A Common Stock14,633 2 (14,633)(2)— — — — — —  
Dividends declared ($0.30 per share)
— — — — (56,395)— — — (56,395)— (56,395)
Distributions to noncontrolling interest owners— — — — — — — — — (23,852)(23,852)
Net income— — — — — — — 662,099 662,099 133,389 795,488 
Balance, September 30, 2022
208,758 $21 28,710 $3 $1,637,279 21,283 $(320,204)$(46,069)$1,271,030 $198,676 $1,469,706 

The accompanying notes are an integral part to these consolidated financial statements.
4


Magnolia Oil & Gas Corporation
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended
September 30, 2022September 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME$795,488 $367,571 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization179,331 134,268 
Amortization of intangible assets 9,346 
Asset retirement obligations accretion2,404 4,065 
Amortization of deferred financing costs4,812 3,149 
Unrealized loss on derivatives, net 277 
Stock based compensation9,864 9,143 
Other (85)
Changes in operating assets and liabilities:
Accounts receivable(57,949)(48,541)
Accounts payable86,700 44,834 
Accrued liabilities19,443 (1,501)
Drilling advances(477)3,743 
Other assets and liabilities, net(10,931)1,666 
Net cash provided by operating activities1,028,685 527,935 
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions(11,749)(10,817)
Additions to oil and natural gas properties(323,510)(162,744)
Changes in working capital associated with additions to oil and natural gas properties14,152 12,435 
Other investing(1,187)(2,316)
Net cash used in investing activities(322,294)(163,442)
CASH FLOW FROM FINANCING ACTIVITIES
Class A Common Stock repurchases(153,138)(70,316)
Class B Common Stock purchases and cancellations(138,753)(171,671)
Non-compete settlement (42,074)
Dividends paid(56,220)(14,103)
Cash paid for debt modification(5,494)(4,976)
Distributions to noncontrolling interest owners(23,852)(5,706)
Other financing activities(6,377)(3,185)
Net cash used in financing activities(383,834)(312,031)
NET CHANGE IN CASH AND CASH EQUIVALENTS322,557 52,462 
Cash and cash equivalents – Beginning of period366,982 192,561 
Cash and cash equivalents – End of period$689,539 $245,023 
SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental cash items:
Cash paid for income taxes$60,906 $(1,128)
Cash paid for interest26,060 26,483 
Supplemental non-cash investing and financing activity:
Accruals or liabilities for capital expenditures$44,088 $28,802 
Supplemental non-cash lease operating activity:
Right-of-use assets obtained in exchange for operating lease obligations$3,773 $4,429 
The accompanying notes are an integral part of these consolidated financial statements.
5


Magnolia Oil & Gas Corporation
Notes to Consolidated Financial Statements

1. Description of Business and Basis of Presentation

Organization and Nature of Operations

Magnolia Oil & Gas Corporation (the “Company” or “Magnolia”) is an independent oil and natural gas company engaged in the acquisition, development, exploration, and production of oil, natural gas, and natural gas liquid (“NGL”) reserves. The Company’s oil and natural gas properties are located primarily in Karnes County and the Giddings area in South Texas where the Company targets the Eagle Ford Shale and Austin Chalk formations. Magnolia’s objective is to generate stock market value over the long-term through consistent organic production growth, high full cycle operating margins, an efficient capital program with short economic paybacks, significant free cash flow after capital expenditures, and effective reinvestment of free cash flow.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, certain disclosures normally included in an Annual Report on Form 10-K have been omitted. The consolidated financial statements and related notes included in this Quarterly Report should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2021 (the “2021 Form 10-K”). Except as disclosed herein, there have been no material changes to the information disclosed in the Notes to the Consolidated Financial Statements included in the Company’s 2021 Form 10-K.

In the opinion of management, all normal, recurring adjustments and accruals considered necessary to present fairly, in all material respects, the Company’s interim financial results have been included. Operating results for the periods presented are not necessarily indicative of expected results for the full year.

Certain reclassifications of prior period financial statements have been made to conform to current reporting practices. The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of intercompany transactions and balances. The Company’s interests in oil and natural gas exploration and production ventures and partnerships are proportionately consolidated. The Company reflects a noncontrolling interest representing primarily the interest owned by the Magnolia LLC Unit Holders through their ownership of Magnolia LLC Units in the consolidated financial statements. The noncontrolling interest is presented as a component of equity. See Note 11—Stockholders’ Equity for further discussion of the noncontrolling interest.

2. Summary of Significant Accounting Policies
    
As of September 30, 2022, the Company’s significant accounting policies are consistent with those discussed in Note 1—Organization and Summary of Significant Accounting Policies of its consolidated financial statements contained in the Company’s 2021 Form 10-K.

3. Revenue Recognition

Magnolia’s revenues include the sale of crude oil, natural gas, and NGLs. The Company has concluded that disaggregating revenue by product type appropriately depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors and has reflected this disaggregation of revenue on the Company’s consolidated statements of operations for all periods presented. The Company’s receivables consist mainly of trade receivables from commodity sales and joint interest billings due from owners on properties the Company operates. Receivables from contracts with customers totaled $160.6 million as of September 30, 2022 and $125.1 million as of December 31, 2021. For further detail regarding the Company’s revenue recognition policies, please refer to Note 1—Organization and Summary of Significant Accounting Policies of the consolidated financial statements contained in the Company’s 2021 Form 10-K.

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4. Derivative Instruments

The Company settled all of its natural gas costless collar derivative contracts by September 30, 2021. From September 30, 2020 to September 30, 2021, Magnolia utilized natural gas costless collars to reduce its exposure to price volatility for a portion of its natural gas production volumes. The Company’s policies do not permit the use of derivative instruments for speculative purposes. Under the Company’s costless collar contracts, each collar had an established floor price and ceiling price. When the settlement price was below the floor price, the counterparty was required to make a payment to the Company and when the settlement price was above the ceiling price, the Company was required to make a payment to the counterparty.

The Company elected not to designate any of its derivative instruments as hedging instruments. Accordingly, changes in the fair value of the Company’s derivative instruments were recorded immediately to earnings as “Loss on derivatives, net” on the Company’s consolidated statements of operations.

The following table summarizes the effects of derivative instruments on the Company’s consolidated statements of operations during the three and nine months ended September 30, 2021:

Three Months EndedNine Months Ended
 (In thousands)September 30, 2021September 30, 2021
Derivative settlements, realized loss$(2,666)$(2,833)
Unrealized gain (loss) on derivatives2,043 (277)
Loss on derivatives, net$(623)$(3,110)

The Company had no outstanding derivative contracts in place as of September 30, 2022.

5. Fair Value Measurements

Certain of the Company’s assets and liabilities are carried at fair value and measured either on a recurring or nonrecurring basis. The Company’s fair value measurements are based either on actual market data or assumptions that other market participants would use in pricing an asset or liability in an orderly transaction, using the valuation hierarchy prescribed by GAAP under Accounting Standards Codification (“ASC”) 820.

The three levels of the fair value hierarchy under ASC 820 are as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical investments at the measurement date are used.

Level 2 - Pricing inputs are other than quoted prices included within Level 1 that are observable for the investment, either directly or indirectly. Level 2 pricing inputs include quoted prices for similar investments in active markets, quoted prices for identical or similar investments in markets that are not active, inputs other than quoted prices that are observable for the investment, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 - Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. The inputs used in determination of fair value require significant judgment and estimation.

Recurring Fair Value Measurements

The carrying value and fair value of the financial instrument that is not carried at fair value in the Company’s consolidated balance sheets at September 30, 2022 and December 31, 2021 are as follows:
September 30, 2022December 31, 2021
(In thousands)Carrying Value Fair ValueCarrying Value Fair Value
 Long-term debt$389,794 $380,508 $388,087 $411,500 
The fair value of the 2026 Senior Notes at September 30, 2022 and December 31, 2021 is based on unadjusted quoted prices in an active market, which is considered a Level 1 input in the fair value hierarchy.

The Company has other financial instruments consisting primarily of receivables, payables, and other current assets and liabilities that approximate fair value due to the nature of the instruments and their relatively short maturities. Non-financial assets and
7


liabilities initially measured at fair value include assets acquired and liabilities assumed in business combinations and asset retirement obligations.

Nonrecurring Fair Value Measurements

Certain of the Company’s assets and liabilities are measured at fair value on a nonrecurring basis. Specifically, stock based compensation is not measured at fair value on an ongoing basis but is subject to fair value calculations in certain circumstances. For further detail, see Note 12—Stock Based Compensation in the Notes to the Consolidated Financial Statements. There were no other nonrecurring fair value measurements as of September 30, 2022 or December 31, 2021.

6. Intangible Assets

Non-Compete Agreement

On July 31, 2018 (the “Closing Date”), the Company and EnerVest, separate and apart from the Business Combination, entered into the Non-Compete, which prohibited EnerVest and certain of its affiliates from competing with the Company in the Eagle Ford Shale until July 31, 2022 (“Prohibited Period End Date”). In January 2021, the Company amended the Non-Compete such that, rather than delivering an aggregate of 4.0 million shares of Class A Common Stock upon the two and one-half year and the four year anniversaries of the Closing Date, the Company would deliver (i) the cash value of approximately 2.0 million shares of Class A Common Stock and approximately 0.4 million shares of Class A Common Stock on the two and one-half year anniversary of the Closing Date and (ii) an aggregate of 1.6 million shares of Class A Common Stock on the four year anniversary of the Closing Date, in each case subject to the terms and conditions of the Non-Compete. On February 1, 2021, as consideration for compliance with the Non-Compete, the Company paid $17.2 million in cash and issued 0.4 million shares of Class A Common Stock.

On June 30, 2021, the Company amended the Prohibited Period End Date to terminate on June 30, 2021 and paid $24.9 million in cash in lieu of delivering the remaining 1.6 million shares of Class A Common Stock (the “Second Non-Compete Amendment”). The Second Non-Compete Amendment resulted in the Company accelerating the amortization of the remaining intangible assets. The Company includes the amortization in “Amortization of intangible assets” on the Company’s consolidated statements of operations.
7. Other Current Liabilities

The following table provides detail of the Company’s other current liabilities for the periods presented:
(In thousands)September 30, 2022December 31, 2021
Accrued capital expenditures$44,088 $29,936 
Other83,275 60,700 
Total other current liabilities$127,363 $90,636 
8. Long-term Debt

The Company’s long-term debt is comprised of the following:
(In thousands)September 30, 2022December 31, 2021
Revolving credit facility$ $ 
Senior Notes due 2026
400,000 400,000 
Total long-term debt400,000 400,000 
Less: Unamortized deferred financing cost (10,206)(11,913)
Long-term debt, net$389,794 $388,087 

Credit Facility

In connection with the consummation of the Business Combination, the RBL Facility was entered into by and among Magnolia Operating, as borrower, Magnolia Intermediate, as its holding company, the banks, financial institutions, and other lending institutions from time to time party thereto, as lenders, the other parties from time to time party thereto, and Citibank, N.A., as administrative agent, collateral agent, issuing bank, and swingline lender. On February 16, 2022, Magnolia Operating, as borrower,
8


amended and restated the RBL Facility (“Amended and Restated RBL Facility”) in its entirety, providing for maximum commitments in an aggregate principal amount of $1.0 billion with a letter of credit facility with a $50.0 million sublimit, with an initial borrowing base of $450.0 million. The Amended and Restated RBL Facility, maturing in February 2026, is guaranteed by certain parent companies and subsidiaries of Magnolia LLC and is collateralized by certain of Magnolia Operating’s oil and natural gas properties.

Borrowings under the Amended and Restated RBL Facility bear interest, at Magnolia Operating’s option, at a rate per annum equal to either the term SOFR rate or the alternative base rate plus the applicable margin. Additionally, Magnolia Operating is required to pay a commitment fee quarterly in arrears in respect of unused commitments under the Amended and Restated RBL Facility. The applicable margin and the commitment fee rate are calculated based upon the utilization levels of the Amended and Restated RBL Facility as a percentage of unused lender commitments then in effect.

The Amended and Restated RBL Facility contains certain affirmative and negative covenants customary for financings of this type, including compliance with a leverage ratio of less than 3.50 to 1.00 and a current ratio of greater than 1.00 to 1.00. As of September 30, 2022, the Company was in compliance with all covenants under the Amended and Restated RBL Facility. The Company incurred approximately $5.5 million of lender and transaction fees related to the modification of which $5.1 million were recorded as deferred financing costs and will be amortized prospectively over the remaining term of the Amended and Restated RBL Facility and $0.4 million of which were expensed and are reflected in “Interest expense, net” on the Company’s consolidated statements of operations for the nine months ended September 30, 2022.

Deferred financing costs in connection with the Amended and Restated RBL Facility are amortized on a straight-line basis over a period of four years from February 2022 to February 2026 and included in “Interest expense, net” in the Company’s consolidated statements of operations. The Company recognized interest expense related to the Amended and Restated RBL Facility and the RBL Facility, as applicable, of $1.1 million and $1.0 million for the three months ended September 30, 2022 and 2021, respectively, and $4.8 million and $3.1 million for the nine months ended September 30, 2022 and 2021, respectively. The unamortized portion of the deferred financing costs is included in “Deferred financing costs, net” on the Company’s consolidated balance sheet as of September 30, 2022.

The Company did not have any outstanding borrowings under the Amended and Restated RBL Facility as of September 30, 2022.

2026 Senior Notes

On July 31, 2018, the Issuers issued and sold $400.0 million aggregate principal amount of 2026 Senior Notes in a private placement under Rule 144A and Regulation S under the Securities Act of 1933, as amended. The 2026 Senior Notes were issued under the Indenture, dated as of July 31, 2018 (the “Indenture”), by and among the Issuers and Deutsche Bank Trust Company Americas, as trustee. The 2026 Senior Notes are guaranteed on a senior unsecured basis by the Company, Magnolia Operating, and Magnolia Intermediate and may be guaranteed by certain future subsidiaries of the Company. The 2026 Senior Notes will mature on August 1, 2026 and bear interest at the rate of 6.0% per annum.

On April 5, 2021, the terms of the Indenture were amended to modify, among other things, the criteria used by the Company to make Restricted Payments (as defined in the Indenture). The amendment to the Indenture was accounted for as a debt modification. Costs incurred with third parties directly related to the modification were expensed as incurred. The Company incurred approximately $1.1 million of transaction fees in the second quarter of 2021 related to the modification which were expensed. The Company also paid $5.0 million in fees to holders of the 2026 Senior Notes, which fees are recorded as deferred financing costs and amortized using the new effective interest rate applied prospectively over the remaining term of the 2026 Senior Notes.

Deferred financing costs related to the issuance of, and the amendment to the Indenture governing, the 2026 Senior Notes are amortized using the effective interest method over the term of the 2026 Senior Notes and are included in “Interest expense, net” in the Company’s consolidated statements of operations. The unamortized portion of the deferred financing costs is included as a reduction to the carrying value of the 2026 Senior Notes, which has been recorded as “Long-term debt, net” on the Company’s consolidated balance sheet as of September 30, 2022. The Company recognized interest expense related to the 2026 Senior Notes of $6.6 million and $6.5 million for the three months ended September 30, 2022 and 2021, respectively, and $19.7 million and $20.5 million for the nine months ended September 30, 2022 and 2021, respectively.

At any time, the Issuers may redeem all or a part of the 2026 Senior Notes based on principal plus a set premium, as set forth in the Indenture, including any accrued and unpaid interest.

9


9. Commitments and Contingencies

Legal Matters

From time to time, the Company is or may become involved in litigation in the ordinary course of business.

Certain of the Magnolia LLC Unit Holders and EnerVest Energy Institutional Fund XIV-C, L.P. (collectively the “Co-Defendants”) and the Company have been named as defendants in a lawsuit where the plaintiffs claim to be entitled to a minority working interest in certain Karnes County Assets. The litigation is in the pre-trial stage. The exposure related to this litigation is currently not reasonably estimable. The Co-Defendants retained all such liability in connection with the Business Combination.

A mineral owner in a Magnolia operated well in Karnes County, Texas filed a complaint with the Texas Railroad Commission (the “Commission”) challenging the validity of the permit to drill such well by questioning the long-standing process by which the Commission granted the permit. After the Commission affirmed the granting of the permit, and after judicial review of the Commission’s order by the 53rd Judicial District Court Travis County, Texas (the “District Court”), the District Court reversed and remanded the Commission’s order. The Commission and Magnolia have appealed the District Court’s judgment to the Third Court of Appeals in Austin, Texas.

At September 30, 2022, the Company does not believe the outcome of any such disputes or legal actions will have a material effect on its consolidated statements of operations, balance sheet, or cash flows. No amounts were accrued with respect to outstanding litigation at September 30, 2022 or September 30, 2021.

Environmental Matters

The Company, as an owner or lessee and operator of oil and natural gas properties, is subject to various federal, state, and local laws and regulations relating to discharge of materials into, and the protection of, the environment. These laws and regulations may, among other things, impose liability on a lessee under an oil and natural gas lease for the cost of pollution clean-up resulting from operations and subject the lessee to liability for pollution damages. In some instances, the Company may be directed to suspend or cease operations in an affected area. The Company maintains insurance coverage, which it believes is customary in the industry, although the Company is not fully insured against all environmental risks.

Risks and Uncertainties 

The Company’s revenue, profitability, and future growth are substantially dependent upon the prevailing and future prices for oil and natural gas, which depend on numerous factors beyond the Company’s control such as overall oil and natural gas production and inventories in relevant markets, economic conditions, the global and domestic political environments, regulatory developments, and competition from other energy sources. Oil and natural gas prices historically have been volatile and may be subject to significant fluctuations in the future. Additionally, the economy has begun to experience elevated inflation levels as a result of global supply and demand imbalances. Inflationary pressures and labor shortages could result in further increases to our operating and capital costs.

The coronavirus disease 2019 (“COVID-19”) pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the oil and natural gas industry. While oil and natural gas prices have increased since 2020, the extent of any further impact of the pandemic, including the emergence and spread of variant strains of COVID-19, on the Company’s industry and business cannot be reasonably predicted at this time. Further, Russia’s invasion of Ukraine in the first quarter of 2022, and global sanctions placed on Russia in response, have had and may continue to have a global impact on supply and demand for oil and natural gas. Magnolia continues to monitor any impacts from the Russia-Ukraine war on the global markets for its commodities.

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10. Income Taxes

The Company’s income tax provision consists of the following components:

Three Months EndedNine Months Ended
 (In thousands)September 30, 2022September 30, 2021September 30, 2022September 30, 2021
Current:
Federal$18,009 $2,604 $60,695 $4,248 
State1,349 1,027 4,638 2,180 
 19,358 3,631 65,333 6,428 
Deferred:
Federal    
State    
     
Income tax expense$19,358 $3,631 $65,333 $6,428 

The Company is subject to U.S. federal income tax, margin tax in the state of Texas, and Louisiana corporate income tax. The Company estimates its annual effective tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which it operates. The Company’s effective tax rate for the three months ended September 30, 2022 and 2021 was 6.3% and 2.2%, respectively. The Company’s effective tax rate for the nine months ended September 30, 2022 and 2021 was 7.6% and 1.7%, respectively. As a result of impairments in the first quarter of 2020, the Company established full valuation allowances on the federal and state deferred tax assets, which resulted in additional differences between the effective tax rate and the statutory rate as of September 30, 2022 and September 30, 2021. The primary differences between the annual effective tax rate and the statutory rate of 21.0% are income attributable to noncontrolling interest, state taxes, and valuation allowances.

As of September 30, 2022, the Company does not anticipate recognition of any significant liabilities for uncertain tax positions during the next 12 months. For the nine months ended September 30, 2022, no amounts were incurred for interest and penalties. Currently, the Company is not aware of any issues under review that could result in significant payments, accruals, or a material deviation from its position. The Company’s tax years since its formation remain subject to possible income tax examinations by its major taxing authorities.

During the nine months ended September 30, 2022, the Magnolia LLC Unit Holders redeemed 14.6 million Magnolia LLC Units (and a corresponding number of shares of Class B Common Stock) for an equivalent number of shares of Class A Common Stock and subsequently sold these shares to the public. Magnolia did not receive any proceeds from the sale of shares of Class A Common Stock by the Magnolia LLC Unit Holders. The redemption and exchange of these Magnolia LLC Units created additional tax basis in Magnolia LLC. There was no net tax impact as the Company recorded a full valuation allowance.

As of September 30, 2022, the Company’s net deferred tax asset was $164.9 million. Management assessed whether it is more-likely-than-not that it will generate sufficient taxable income to realize its deferred income tax assets, including the investment in partnership and net operating loss carryforwards. In making this determination, the Company considered all available positive and negative evidence and made certain assumptions. The Company considered, among other things, the overall business environment, its historical earnings and losses, current industry trends, and its outlook for future years. As of September 30, 2022, the Company assessed the realizability of the deferred tax assets and recorded a full valuation allowance of $164.9 million.

As commodity prices have improved during 2021 and 2022, Magnolia has begun to sustain a level of increased profitability such that, net of its net operating loss, Magnolia is recognizing taxable income. As this continues, increased weight will be given to positive operating results, along with projections of future taxable income, in determining whether future taxable income will be sufficient to provide for realization of the Company’s deferred tax assets, and if so, this new evidence may result in a change in estimate of the Company’s valuation allowance in the next 12 months.

On August 16, 2022, the U.S. enacted legislation referred to as the Inflation Reduction Act (“IRA”), which significantly changes U.S. corporate income tax laws and is effective for tax years beginning after December 31, 2022. These changes include, among others, a new 15% corporate alternative minimum tax on adjusted financial statement income of corporations with profits over $1 billion, a 1% excise tax on stock buybacks, and various tax incentives for energy and climate initiatives. The Company is in the process of evaluating the provisions of the IRA, but it does not currently believe the IRA will have a material impact on its reported results, cash flows or financial position when it becomes effective.

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11. Stockholders’ Equity

Class A Common Stock

At September 30, 2022, there were 208.8 million shares of Class A Common Stock issued and 187.5 million shares of Class A Common Stock outstanding. The holders of Class A Common Stock and Class B Common Stock vote together as a single class on all matters and are entitled one vote for each share held. There is no cumulative voting with respect to the election of directors, which results in the holders of more than 50% of the Company’s outstanding common shares being able to elect all of the directors, subject to voting obligations under the Stockholder Agreement. In the event of a liquidation, dissolution, or winding up of the Company, the holders of the Class A Common Stock are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of stock, if any, having preference over the common stock. The holders of the Class A Common Stock have no preemptive or other subscription rights, and there are no sinking fund provisions applicable to such shares.

Class B Common Stock

At September 30, 2022, there were 28.7 million shares of Class B Common Stock issued and outstanding. Holders of Class B Common Stock vote together as a single class with holders of Class A Common Stock on all matters properly submitted to a vote of the stockholders. The holders of Class B Common Stock generally have the right to exchange all or a portion of their shares of Class B Common Stock, together with an equal number of Magnolia LLC Units, for the same number of shares of Class A Common Stock or, at Magnolia LLC’s option, an equivalent amount of cash. Upon the future redemption or exchange of Magnolia LLC Units held by any holder of Class B Common Stock, a corresponding number of shares of Class B Common Stock held by such holder of Class B Common Stock will be canceled. In the event of a liquidation, dissolution, or winding up of Magnolia LLC, the holders of the Class B Common Stock, through their ownership of Magnolia LLC Units, are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of units of Magnolia LLC, if any, having preference over the common units. The holders of the Class B Common Stock have no preemptive or other subscription rights, and there are no sinking fund provisions applicable to such shares.

Share Repurchases

The Company’s board of directors has authorized a share repurchase program of up to 30.0 million shares of Class A Common Stock. The program does not require purchases to be made within a particular time frame. As of September 30, 2022, the Company had repurchased 20.7 million shares under the program at a cost of $308.6 million.

During the nine months ended September 30, 2022, the Company also repurchased 0.6 million shares of Class A Common Stock for $11.6 million from EnerVest Energy Institutional Fund XIV-C, L.P. outside of the share repurchase program.

During the nine months ended September 30, 2022 Magnolia LLC repurchased and subsequently canceled 5.9 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock for $138.8 million of cash consideration (the “Class B Common Stock Repurchases”). During the same period, the Magnolia LLC Unit Holders redeemed 14.6 million Magnolia LLC Units (and a corresponding number of shares of Class B Common Stock) for an equivalent number of shares of Class A Common Stock and subsequently sold these shares to the public.

During the nine months ended September 30, 2021 Magnolia LLC repurchased and subsequently canceled 13.0 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock for $171.7 million of cash consideration (the “Class B Common Stock Repurchases”). During the same period, the Magnolia LLC Unit Holders redeemed 19.9 million Magnolia LLC Units (and a corresponding number of shares of Class B Common Stock) for an equivalent number of shares of Class A Common Stock and subsequently sold these shares to the public.

Magnolia did not receive any proceeds from the sale of shares of Class A Common Stock by the Magnolia LLC Unit Holders. Magnolia funded the Class B Common Stock Repurchases with cash on hand.

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Dividends and Distributions

In 2021, the Company’s board of directors announced the Company’s first dividend, payable on issued and outstanding shares of Class A Common Stock, and a corresponding distribution from Magnolia LLC to Magnolia LLC Unit Holders.

Dividends in excess of retained earnings are recorded as a reduction of additional paid-in capital. The dividends declared in 2022 and 2021 were recorded as a reduction of additional paid-in capital on the Company’s consolidated balance sheets as of September 30, 2022 and December 31, 2021. The distributions to the Magnolia LLC Unit Holders were recorded as a reduction of noncontrolling interest on the Company’s consolidated balance sheets as of September 30, 2022 and December 31, 2021.

The following table sets forth information with respect to cash dividends and distributions declared by the Company’s board of directors during the nine months ended September 30, 2022 and the year ended December 31, 2021, on its own behalf and in its capacity as the managing member of Magnolia LLC, on issued and outstanding shares of Class A Common Stock and Magnolia LLC Units:

Record Date
Payment Date
Dividend/
Distribution Amount per share (1)
Distributions by Magnolia LLC (2)
Dividends Declared
by the Company (2)
Distributions to Magnolia LLC Unit Holders
(In thousands, except per share amounts)
August 12, 2022
September 1, 2022
$0.10 $21,983 $19,112 $2,871 
February 14, 2022
March 1, 2022
$0.20 $45,851 $37,283 $8,568 
August 12, 2021
September 1, 2021
$0.08 $19,078 $14,236 $4,842 
(1)    Per share of Class A Common Stock and per Magnolia LLC Unit.
(2)    Reflects total cash dividend and distribution payments made, or to be made, to holders of Class A Common Stock and Magnolia LLC Unit Holders (other than the Company) as of the applicable record date.

Noncontrolling Interest

Noncontrolling interest in Magnolia’s consolidated subsidiaries includes amounts attributable to Magnolia LLC Units that were issued to the Magnolia LLC Unit Holders in connection with the Business Combination. The noncontrolling interest percentage is affected by various equity transactions such as issuances and repurchases of Class A Common Stock, the exchange of Class B Common Stock (and corresponding Magnolia LLC Units) for Class A Common Stock, or the cancellation of Class B Common Stock (and corresponding Magnolia LLC Units). As of September 30, 2022, Magnolia owned approximately 86.7% of the interest in Magnolia LLC and the noncontrolling interest was approximately 13.3%.

In the first quarter of 2019, Magnolia Operating formed Highlander Oil & Gas Holdings LLC (“Highlander”) as a joint venture whereby MGY Louisiana LLC, a wholly owned subsidiary of Magnolia Operating, holds approximately 84.7% of the units of Highlander, with the remaining 15.3% attributable to noncontrolling interest.

12. Stock Based Compensation

On October 8, 2018, the Company’s board of directors adopted the “Magnolia Oil & Gas Corporation Long Term Incentive Plan” (as amended, the “Plan”), effective as of July 17, 2018. A total of 16.8 million shares of Class A Common Stock have been authorized for issuance under the Plan as of September 30, 2022. The Company grants stock based compensation awards in the form of restricted stock units (“RSU”), performance restricted stock units (“PRSU”), and performance stock units (“PSU”) to eligible employees and directors to enhance the Company and its affiliates’ ability to attract, retain, and motivate persons who make important contributions to the Company and its affiliates by providing these individuals with equity ownership opportunities. Shares issued as a result of awards granted under the Plan are generally new shares of Class A Common Stock.

Stock based compensation expense is recognized net of forfeitures within “General and administrative expenses” and “Lease operating expenses” on the consolidated statements of operations and was $3.5 million and $2.9 million for the three months ended September 30, 2022 and 2021, respectively, and $9.9 million and $9.1 million for the nine months ended September 30, 2022 and 2021, respectively. The Company has elected to account for forfeitures of awards granted under the Plan as they occur in determining compensation expense.

The following table presents a summary of Magnolia’s unvested RSU, PRSU, and PSU activity for the three months ended September 30, 2022.

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Restricted
Stock Units
Performance Restricted
Stock Units
Performance
Stock Units
UnitsWeighted Average Grant Date Fair ValueUnitsWeighted Average Grant Date Fair ValueUnitsWeighted Average Grant Date Fair Value
Unvested at June 30, 20221,053,514 $