Magnolia Oil and Gas Corporation 2022 Annual Report
Magnolia Oil and Gas Corporation 2022 Annual Report
2022 HIGHLIGHTS Strong commodity prices combined with double-digit production growth, continued improvement
in operating efficiencies achieved at our Giddings asset, along with our team’s efforts in managing our costs allowed us to
deliver a record pretax operating income margin of 63 percent for the year ended December 31, 2022. We sustained our
commitment to capital discipline, spending just 34 percent of our adjusted EBITDAX1 on drilling and completing wells,
delivering year-over-year production volume growth of more than 14 percent, and generating free cash flow1 of $824
million for the year.
Consistent with our ongoing commitment to provide strong returns for our investors, we returned 54 percent of the free
cash flow we generated to our shareholders. We repurchased 15 million shares in 2022, reducing our diluted weighted
average share count by 8 percent. We also increased our quarterly base dividend by 43 percent from 2021. In addition, we
acquired acreage, minerals, and additional working interests at our Giddings asset, primarily outside of our core
development area, further building on our strong position in the play. All told, after capital expenditures, bolt-on
acquisitions, share repurchases, and dividend payments, we ended the year with a cash balance of more than $675 million.
Operationally, our team’s focus on managing costs and generating efficiencies despite an inflationary oil service cost
environment further enhanced our margins in Giddings, where we continued to execute on our development program in
2022. A significant contributor to our strong financial performance, our Giddings assets now represent more than half of
our overall production and proved reserves. We plan to continue to improve our operating efficiencies at the Giddings
field and work with vendors to manage costs along our supply chain.
2023 OUTLOOK We enter 2023 in a position of strength. Our operational plan is similar to last year’s with an enhanced
focus on improving execution and generating further efficiencies. We expect to continue to operate a two-rig drilling
program, which should generate moderate full-year production growth, mostly from our Giddings program. We will
remain disciplined on our drilling and completion capital, limiting spending to about 55 percent of adjusted EBITDAX,
allowing for significant free cash flow. Importantly, we’ll continue to focus on increasing our dividend per share payout
capacity. Our plan is to deliver moderate production growth, repurchase at least 1 percent of our outstanding shares per
quarter, and pursue small, accretive bolt-on acquisitions, actions that we expect to support annual dividend growth of
about 10 percent over time.
FOCUS ON SUSTAINABILITY We remain committed to keeping stakeholders informed about our performance on key
environmental, social, and governance (“ESG”) measures. We enhanced the disclosures in our 2022 report, providing
more detail on our ESG performance and practices. We reported on several new categories in our Sustainable Accounting
Standards Board disclosure tables and expanded our quantitative metrics to cover three full years of Magnolia’s
performance on these measures, when available. We will continue to build on our progress going forward.
Across our company, from our Houston headquarters to our field locations, every Magnolia employee is a shareholder
and aligned with our investors. Despite the changes we experienced in 2022, we remain committed to running Magnolia
in the best interest of our investors. We plan to remain disciplined around capital spending, maintain low levels of debt,
and deliver moderate annual production growth, while generating significant amounts of free cash flow with strong
operating margins. We look forward to executing on these core principles of our business strategy and extending our
record of accomplishments in 2023 and beyond.
Sincerely,
Chris Stavros
President and Chief Executive Officer
1 Adjusted EBITDAX and free cash flow are non-GAAP financial measures. For a reconciliation of the most directly comparable GAAP measures refer to Annex A.
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Annex A: Magnolia Oil & Gas Corporation Non-GAAP Financial Measures
We refer to adjusted EBITDAX, a supplemental non-GAAP financial measure that is used by management and
external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating
agencies. We define adjusted EBITDAX as net income before interest expense, income taxes, depreciation,
depletion and amortization, exploration expenses, and accretion of asset retirement obligations, adjusted to
exclude the effect of certain items included in net income. Adjusted EBITDAX is not a measure of net income in
accordance with GAAP.
The following table presents a reconciliation of net income to adjusted EBITDAX, our most directly comparable
financial measure calculated and presented in accordance with GAAP:
For the
(In thousands) Year Ended
December 31, 2022
NET INCOME $ 1,050,249
Exploration expenses 11,586
Asset retirement obligations accretion 3,245
Depreciation, depletion and amortization 243,152
Interest expense, net 23,442
Income tax expense 6,638
EBITDAX 1,338,312
Other income adjustment (6,333)
Non-cash stock based compensation expense 13,314
Adjusted EBITDAX $ 1,345,293
For the
(In thousands) Year Ended
December 31, 2022
Capital expenditures - D&C $ 459,837
Adjusted EBITDAX $ 1,345,293
D&C capital as percent of adjusted EBITDAX 34%
Annex A: Magnolia Oil & Gas Corporation Non-GAAP Financial Measures
Free cash flow is a non-GAAP financial measure. Free cash flow is defined as cash flows from operations before
net change in operating assets and liabilities less additions to oil and natural gas properties and changes in
working capital associated with additions to oil and natural gas properties. Free cash flow, therefore, is an
additional measure of liquidity, but is not a measure of financial performance under GAAP and should not be
considered an alternative to cash flows from operating, investing, or financing activities.
The following table presents a reconciliation of net cash provided by operating activities to free cash flow, our
most directly comparable financial measure calculated and presented in accordance with GAAP:
For the
(In thousands) Year Ended
December 31, 2022
Net cash provided by operating activities $ 1,296,687
Add back: net change in operating assets and liabilities (46,039)
Cash flows from operations before net change in operating assets and liabilities 1,250,648
Additions to oil and natural gas properties (465,139)
Changes in working capital associated with additions to oil and natural gas properties 37,987
Free cash flow $ 823,496
Magnolia Oil & Gas Corporation
Nine Greenway Plaza, Suite 1300
Houston, Texas 77046
www.magnoliaoilgas.com
713.842.9050