管理層發言
Good morning, everyone, and thank you for participating in Magnolia Oil and Gas Corporation's Second Quarter 2026 Earnings Conference Call. My name is Megan, 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.
Thank you, Megan, and good morning, everyone. Welcome to Magnolia Oil and Gas' second quarter earnings conference call. Participating on the call today are Christopher G. Stavros, Magnolia's Chairman, President and Chief Executive Officer, and Brian Michael Corales, Senior Vice President and Chief Financial Officer. As a reminder, today's conference call contains certain projections and other forward-looking statements, which are 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 second quarter 2026 earnings press release as well as the conference call slides from the Investors section of the company's website, www.magnoliaoilgas.com. I will now turn the call over to Mr. Christopher G. Stavros.
Tom, and good morning, everyone. Thank you all for joining us today for a discussion of our second quarter 2026 financial and operating results. I know that today is a very busy day of earnings. I will briefly cover our second quarter results which continue to validate the consistent, high-quality nature of our Giddings asset and provide strong overall financial results, returns, together with our current rate business. I will then highlight a few items related to the financing underlying our recent agreement to acquire Wildfire Energy. Brian will then review our financial results for the second quarter in greater detail and provide some additional guidance before we take your questions. Beginning on Slide 3 in our quarterly investor presentation, Magnolia marked its 8-year anniversary by delivering another quarter of strong and consistent execution as seen through our financial and operating metrics which continue to underscore the strength of our differentiated business model and the quality of our asset base.
Strong second quarter financial metrics were supported by both solid production growth and higher year-over-year oil and NGL prices. Our second quarter adjusted net income was approximately $184 million or $0.99 per diluted share with adjusted EBITDAX of $370 million during the period. Drilling and completion capital for the second quarter was $125 million, a reinvestment rate of just 34% of our adjusted EBITDAX and our lowest quarterly rate of capital reinvestment since 2022. Our pretax adjusted operating income margins averaged a very robust 51% for the quarter. Magnolia generated $235 million of free cash flow in the second quarter and returned $80 million of this free cash to our shareholders through a combination of our base dividend and our share repurchase program where we bought back just over 1.7 million shares during the quarter. Our ongoing discipline around capital allocation, strong operational performance and continued focus on our financial returns allowed us to generate meaningful free cash flow and to continue to execute on our proven business model.
In the second quarter of 2026, total company production volumes grew by 8% year over year to 106 thousand barrels of oil equivalent per day, above our expectations in earlier guidance, with oil production growing by 5% and averaging 41.9 thousand barrels per day. Our total production and oil production volumes established new quarterly records for the company. Based on the strong second quarter production, we are raising Magnolia standalone full year 2026 production growth guidance to 6% from 5%. Production at Giddings continued to be the primary growth driver for Magnolia, setting a new quarterly record with total Giddings production increasing 10% year over year to 85.5 thousand barrels of oil equivalent per day and oil production of 29 thousand barrels per day, with growth of 7% over the same period. Giddings production accounts for approximately 81% of Magnolia's total company volumes.
Production in our Karnes area was relatively flat year over year at just over 20 thousand barrels of oil equivalent per day during the second quarter, which we expect to sustain for many years. The Karnes area assets continue to generate a significant amount of free cash flow for Magnolia. Turning to Slide 4. As we announced last month, we entered into a definitive agreement to acquire Wildfire Energy for a total consideration of approximately $4.06 billion. The acquisition will add approximately 110 thousand net acres to Magnolia's Giddings-area position and total oil and gas production of roughly 53 thousand barrels of oil equivalent per day, including 37 thousand barrels per day of oil. The acquisition of the Wildfire oil and gas properties and acreage is a natural and strategic fit for Magnolia and greatly improves our business by extending our runway of advantaged profitability and the durability of our significant free cash flow generation.
The fit should be clear given the sizable overlap, with roughly 70% of Magnolia's existing acreage benefiting from the transaction with significantly more acreage benefiting from adjacency. Our combined position in the Giddings field will amount to more than 1.25 million net acres with upside development opportunities across multiple benches, including the Austin Chalk, Eagle Ford and Woodbine. The acquisition is a culmination of our extensive subsurface understanding, experience and the demonstration of our proven resource capture in the Giddings field. This creates a premier upstream operation in South Texas by combining two high-quality and complementary assets near Gulf Coast markets, which offer premium pricing for our products. We expect the transaction to be immediately and highly accretive to our key per-share financial metrics, including cash flow, free cash flow and earnings in addition to enhancing our D&C capital reinvestment rate.
Wildfire is not only a strong fit for Magnolia offering unique benefits, but it also provides several important characteristics we look for, namely focused, high-quality assets with concentrated scale, a low capital reinvestment rate, the ability to provide moderate production growth with high operating margins and steady free cash flow allowing for consistent and significant shareholder returns. Following the Wildfire announcement, Magnolia executed multiple capital markets transactions to partially fund the acquisition. Magnolia issued 53.3 million new shares in a public equity offering for net proceeds of $1.23 billion in addition to $500 million of senior notes at a 6 5/8% coupon due in 2034. These two transactions closed on July 22 and August 5, respectively. In total, the Wildfire acquisition will be funded with a balanced mix of approximately half equity and half debt with the acquisition on track and expected to close late in the third quarter.
Turning to Slide 5, one of the most important elements of the Wildfire acquisition is that Magnolia's differentiated, proven, and highly investable business model remains unchanged. While the acquisition adds more leverage than we had carried historically, we believe this is very manageable. Given the significant increase in our free cash flow generation, we have a clear line of sight towards the reduction of debt, which we expect to be less than 1x our net debt to EBITDA by year-end 2027, if not sooner, returning us to our traditionally more conservative leverage profile. As part of our disciplined capital plan, we will continue to limit our D&C spending to 55% of adjusted EBITDAX, which provides consistent free cash flow through the cycle while delivering both moderate annual total production growth and oil growth. With our combined oil production mix of approximately 50%, we expect to generate high pretax operating margins and, in keeping with our business model, continue to return a significant portion of our free cash flow to our shareholders.
This includes a safe, sustainable and growing dividend, which is expected to compound at a rate of about 10% over the long term in addition to our ongoing share repurchases of at least 1% of the outstanding shares per quarter. I often mention that one of Magnolia's primary goals is to be the most efficient operator of our best-in-class oil and gas assets to generate the highest returns on those assets while spending the least amount of capital on drilling and completing wells. The combination of Magnolia and Wildfire creates a larger and stronger enterprise with a concentrated acreage position that offers moderate growth, best-in-class financial returns while generating significant free cash flow. Magnolia will continue to look and behave like it has historically, with an emphasis on managing both operational and financial risk and using the same differentiated and proven business model to continuously compound value for our shareholders.
As we were briefly restricted from share repurchases while working on the Wildfire acquisition, we expect to resume our share repurchases after today's quarterly results. I will now turn the call over to Brian for further details on the quarter and some additional guidance.
Thanks, Christopher, 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 will also provide some additional guidance for the third quarter of 2026 before turning it over for questions. Beginning on Slide 6, Magnolia delivered a strong quarter generating adjusted net income of $184 million or $0.99 per diluted share. Adjusted EBITDAX for the quarter was $370 million with total capital associated with drilling, completions and associated facilities of $125 million representing just 34% of adjusted EBITDAX. Second quarter production volumes grew 8% year over year to 106 thousand barrels of oil equivalent per day, while generating free cash flow of $235 million. Our second quarter annualized return on capital employed was 39%, as a result of higher prices and increased production. Looking at the quarterly cash flow waterfall chart on Slide 7, we started the quarter with $124 million of cash flow from operations before changes in working capital which was $362 million with working capital changes and other small items impacting cash by $15 million.
During the quarter, we paid dividends of $31 million and allocated $49 million towards share repurchases. We incurred $125 million in drilling, completions and associated facilities and leasehold, and we ended the quarter with $296 million of cash, an increase of $172 million. Looking at Slide 8, this chart illustrates the significant amount of share repurchases we have done beginning the program in the second half of 2019. Since that time, we have repurchased 85.5 million shares. We repurchased just over 1.7 million shares during the quarter prior to being restricted due to the transaction, leading to the diluted weighted average shares outstanding of 184.6 million shares during the second quarter. We currently have 9.9 million shares remaining under our repurchase authorization. Turning to Slide 9. Our dividend growth has grown substantially over the past few years, including a 10% increase announced early 2026 and an additional 9% increase announced a couple of weeks ago in conjunction with our definitive agreement to acquire Wildfire to $0.18 per share on a quarterly basis.
Our next quarterly dividend is payable on September 1 and provides an annualized dividend payout rate of $0.72 per share. Our plan for annualized dividend growth is an important part of Magnolia's investment proposition and supported by our overall strategy of achieving moderate annual production growth, reducing our outstanding shares and increasing the dividend payout capacity of the company. Magnolia continues to have a strong balance sheet; we ended the quarter with $296 million of cash. Our $400 million senior notes do not mature until 2032, and our recently closed offering of $500 million senior notes associated with the financing of the Wildfire transaction matures in 2034. Upon closing, late in the third quarter, we will also assume Wildfire's $600 million senior notes due in 2029. Also upon closing, our credit facility will increase to a $2 billion borrowing base with elected commitments of $1.75 billion providing plenty of available liquidity.
We thoughtfully financed the transaction with half equity and half debt positioning Magnolia to have a very manageable debt load at the close of the transaction allowing us to maintain our business model and our consistent return of capital program. With a significant increase to pro forma cash flows, our plan is to immediately begin to reduce our debt post-closing of the transaction. Our condensed balance sheet as of June 30 is shown on Slide 10. Turning to Slide 11 and looking at our per unit cash cost and operating income margins. Total revenue per BOE increased approximately 39% year over year due to the strength in oil prices. Our total adjusted cash operating costs including G&A were $11.55 per BOE in the second quarter of 2026, and our adjusted operating income margin for the second quarter was $25.15 per BOE or 51% of our total revenue. Turning to guidance. Third quarter D&C capital expenditures for Magnolia standalone is expected to be approximately $115 million.
In addition, total production for the third quarter is estimated to be similar to second quarter levels or approximately 106 thousand barrels of oil equivalent a day. Our full year 2026 outlook for total production growth has increased to approximately 6% from our prior guidance of 5%. Oil realizations have trended back to our historical differentials and we are anticipating prices for the third quarter to be at a $3 per barrel discount to Magellan East Houston benchmark pricing. The fully diluted share count after closing the Wildfire transaction is expected to be approximately 269 million shares. We expect our effective tax rate to be approximately 21% and cash taxes for 2026 to be minimal. We are now ready to take your questions.
分析師問答
We will now begin the question-and-answer session. The first question comes from Neal Dingmann with William Blair. Please go ahead.
Hey, morning team. This is Bert filling in. I know Wildfire has not closed yet, but maybe you could give early thoughts on what a blended D&C plan might look like. Last call, I think you mentioned you are picking up the rig and crew, two rigs and a crew. That might imply 50, but we have kind of looked at the data in Giddings on Enverus and that seems pretty strong. So it would be impressive for the new assets to kind of get equal screen time. Any thoughts on how you would prioritize the two assets? Also, on the capital allocation of your free cash flow, you laid out the five pillars. We assume most of it will go towards debt. But is there a large opportunity to add working interest or, I think you called it, small bolt-ons? I just imagine there would be some white space, but also that Wildfire probably bought up everything they could. If there was anything left in the area, was that implying outside the pro forma footprint?
Yes. Thanks. Good morning. If you just simplistically took what we have been doing and what they have been doing and combined it, that is not a bad starting point. There are two rigs for each of us and one completion crew for each of us. It is still very early; we have not closed. We will have more information for you probably later, at the back part of this year and after we close on the combined business on our activity. I do believe that we can do better on a combined basis. Our emphasis is to do this as efficiently as possible, and I think we will be able to do that. We know the field very well. We know the subsurface very well. We have very good vendors to work with and good crews, and we will be evaluating theirs. Collectively, I do believe that on a combined basis, we will be able to do better. On the capital allocation of free cash flow, the money in excess of our return of capital plan will go to debt first and foremost.
Then, if there is a little left over, we will be open to picking off some working interest and royalties on a concentrated basis here and there within the existing footprint of combined Magnolia and Wildfire. I do not think we will be moving vastly out of that footprint. These will be the typical smaller bolt-ons that we have done that will amount to small amounts of money outflow. I would not tell you that there is anything very large by any means. So, the free cash flow in excess of our return of capital plan will go to debt first and then potentially to small, targeted bolt-ons that improve our capability.
That sounds like the right thing to do. Thanks, guys.
The next question comes from Phillip Jungwirth with BMO. Please go ahead.
I wanted to come back to the Austin Chalk potential discussion for Wildfire. Obviously, they mostly targeted the Lower Eagle Ford, but they do have some strong Chalk wells across the Robertson and Burleson area offsetting you in Washington and also eastern Brazos County. Which of these areas do you think are more interesting and could the Chalk potential be more widespread across the footprint beyond the areas they have tested?
You could be right. We will certainly give it our best shot and try to figure that out. This is an enormous footprint, 1.25 million net acres, so it is going to take us some time to work through. I think the areas you identified are correct, in addition to areas in Burleson. There is a tremendous amount of potential upside. Up to now, Wildfire has done limited testing and drilling on the Chalk, so I think there is a lot of low-hanging fruit that will be accumulated under Magnolia's experience, expertise and technical knowledge, and we will get at it over time into next year and beyond. Our folks will feel like kids in a candy store. There will be lots to work on. Regarding the acquired sand mine and the benefits: we did not quantify or break out specific savings from the sand mine, but I would tell you in aggregate it is several million dollars of the synergies and cost-saving benefits that will be captured in the process. Owning a sand mine is different for us, but we were sourcing the majority of our sand requirements from that mine, so it is important to us and they have done a good job running it. It will be meaningful in terms of what we are able to do going forward.
The next question comes from Carlos Escalante with Wolfe. Please go ahead.
Hey, Christopher and Brian. Thank you for taking my question today. My question is around how we should think about the trajectory of what you develop the next 12 months. More explicitly, knowing that Wildfire was more of an Eagle Ford developer and you are more of an Austin Chalk developer, what do you think is a good placeholder for us modeling the company to have for the next 12 months? Is it a transition from Eagle Ford at first onto Austin Chalk, or should we expect a more equivalent development between both?
I think the plan will be a roughly even mix of Eagle Ford and Chalk. That is not to say there is any issue either way; it will probably be a balanced plan initially. That actually represents an uplift on the Chalk D&C activity relative to what they have been doing because we think there is a lot more to capture there given our expertise and experience. The benefit of the Eagle Ford for us is that it has been developed for many years by various operators, including Wildfire, so there is a lot of consistent operational experience and expertise. We will be looking at ways they have done things to see if we can employ our model on top of that to find improvements in how we drill and complete, perhaps more so in drilling. The cadence will be fairly even, but that would represent an uplift on the Chalk activity relative to what Wildfire has been doing. Regarding Karnes, that asset we are very confident we can hold flat for many years, and given some recent acquisitions to bolster upside development there, we like the asset. It generates an enormous amount of free cash flow and provides ballast and stability for the overall organization. It is a very important element of the business model going forward, with high-quality rock and more potential down the road that we will access over time.
The next question comes from Peyton Doorn with UBS. Please go ahead.
Hi, good morning Christopher and team. Thanks for having me on. I wondered if you could walk through the mechanics of the buyback a bit for 3Q. Christopher, it sounds like from your comments that the restrictions are now over and you will be back in the market. Are there any restrictions on the repurchases as we get closer to the deal close? Any other nuances we should be thinking about this quarter on the buyback? Also, when you think about the expected larger scale post-Wildfire, is there a minimum cash balance you would like to keep on hand going forward? What is your approach to repaying the revolver once the deal closes?
We have pretty much disclosed everything that we need to and are required to disclose. We are not in possession of any material nonpublic information, so we are open to repurchase and will get at that as soon as possible. To the extent the stock does not perform the way we believe it should or reflect the benefits of the transaction, we may choose to be more aggressive. Regarding the revolver and minimum cash balance, reducing leverage and debt will be a priority for us, with leverage coming down ratably. At current commodity prices, that will move ahead at a decent clip and you will see it reflected in our financials every quarter. If we can find extra money to repay debt, we may do that. We will mark time with the financials every quarter and you will see the debt come down each period. I do not want to give too much in the way of specifics, but that will be a big focus and I feel very confident that we will be below 1x net debt to EBITDA by the end of next year, and probably sooner.
Our next question comes from Charles Meade with Johnson Rice. Please go ahead.
Hey, good morning guys and thanks for taking my question. I wanted to focus on the production guidance increase from 5% to 6% year-over-year. I know much of that increase is from the Giddings acreage; actually all of it is. Curious if it is simply well outperformance of expectations so far, or if you have made any changes on the D&C front that might be contributing to that?
No, there is nothing very meaningful in this particular period or in the last three to six months that I would tell you has been needle moving on the D&C front in terms of well performance. It is really just good operational outcomes from the wells that we brought online in Giddings. That is exactly what I would point to. Importantly, this is all standalone Magnolia. We have done better than we anticipated and that program is continuing that way. So it is very specifically the well performance driving the increase in guidance.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.