Magnolia Oil & Gas Corporation MGY reported first-quarter 2024 adjusted net income of 49 cents per share, which beat the Zacks Consensus Estimate of 44 cents. The outperformance can be primarily attributed to a healthy increase in production volumes and higher oil prices year over year. However, the bottom line deteriorated from the year-ago quarter’s level of 56 cents due to higher year-over-year operating expenses.
Total revenues came in at $319.4 million, which beat the Zacks Consensus Estimate of $308 million. The top line also improved 3.6% from $308.4 million recorded in the year-ago period.
In the first quarter, the independent oil and natural gas company recorded $210.9 million in net cash from operating activities and achieved a free cash flow of $117.1 million. Magnolia’s adjusted operating income was 39% of revenues.
On May 2, South Texas-focused Magnolia declared a cash dividend of 13 cents per share of Class A common stock and a cash distribution of 13 cents per Class B unit, payable on Jun 3, to shareholders of record as of May 13.
The company bought back 2.4 million shares of its Class A Common Stock for $52.4 million during the first quarter. Magnolia still has 6.9 million Class A Common shares available under its existing repurchase authorization, designated specifically for open market share buybacks.
During the first quarter, MGY allocated $79.2 million, representing 68% of its free cash flow to its shareholders through a blend of share repurchases and dividends. The company has not utilized its $450 million revolving credit facility, has no debt repayments due until 2026, and presently has no aims to augment its bonded indebtedness.
Production & Prices
The average daily total output of 84,784 barrels of oil equivalent per day (boe/d) increased from the year-ago quarter’s figure of 79,342 boe/d. However, the figure surpassed our estimate of 84,500 boe/d.
Oil and gas production increased 6.9% year over year. Oil volumes totaled 37,531 barrels per day (bpd), up 4.9% from the year-ago quarter. Additionally, the figure exceeded our estimate of 37,000 bpd. On the other hand, natural gas volumes reached 151,086 thousand cubic feet per day (Mcf/d), up 7.5% from the first quarter of 2023. The figure also exceeded our expectations of 142,000 Mcf/d.
The average realized crude oil price was $75.89 per barrel, indicating a 2.2% increase from the year-ago period’s level of $74.24. The average realized natural gas liquids price was $19.49 per barrel, implying a 14.9% deterioration from the year-ago period’s figure. Natural gas prices decreased 30.5% year over year to $1.53 per thousand cubic feet. MGY recorded an average sales price per boe of $41.40 compared with $43.18 a year ago.
Balance Sheet & Capital Expenditure
As of Mar 31, Magnolia had cash and cash equivalents of $399.3 million and long-term debt of $393.5 million. The total debt-to-total capital was 17.2%.
The company spent $119 million on its capital program in the reported quarter. Operating expenses increased to $194.9 million from $181.4 million in the year-ago period.
Magnolia’s Strategic Approach for 2024
The oil and gas exploration and production company plans to keep drilling in 2024 at the same pace (2 rigs and 1 completion crew) as last year. Even though MGY is drilling at the same rate, the company found ways to cut costs and work faster, so that it can afford to drill more wells in total.
This year, MGY will focus most of its drilling on groups of wells (multi-well pads) in the Giddings area, with some drilling in Karnes and other areas they already own. The wells in Giddings will be a bit longer than last year, at around 8,500 feet. Magnolia’s main goal is to make more money by finding and drilling more oil and gas wells.
Guidance
Magnolia reiterated its earlier guidance regarding plans to allocate between $450 million and $480 million for drilling and completion (D&C) capital expenditures in 2024.
The company anticipates achieving total production growth in the high single digits compared to 2023, with oil production expanding at a comparable pace.
The company anticipates second-quarter D&C capital expenditures to be between $120 million to $125 million, which will be the highest quarterly rate of spending in 2024. Total production for the second quarter is expected to be approximately 89 Mboe/d.
Magnolia plans to offer a $3.00 per barrel discount to Magellan East Houston, leaving it unhedged for all oil and natural gas production.
The Zacks Rank #3 (Hold) company expects the diluted share count to be around 203 million in the second quarter of 2024, which is 4% lower than that in the year-ago period.
Magnolia plans to leverage the operational expertise of its recently acquired assets, expecting improved field operations and efficiencies. Consequently, this should lead to decreased unit operating costs, a development expected to materialize in the latter part of 2024. Drawing from extensive experience and knowledge gained from operating in the Giddings area, the company is confident that these efforts will increase these assets’ margins and enhance free cash flow.
Important Energy Earnings So Far
While we have discussed MYG’s first-quarter results in detail, let’s take a look at some other key energy reports of this season.
EOG Resources, Inc. EOG, an American energy company engaged in hydrocarbon exploration, announced first-quarter 2024 adjusted earnings per share of $2.82, which beat the Zacks Consensus Estimate of $2.70. The bottom line also increased from the year-ago quarter’s level of $2.69. Strong quarterly results were primarily driven by higher total production volumes.
Total quarterly revenues of $6.1 billion beat the Zacks Consensus Estimate of $5.9 billion. The top line also improved from the prior-year quarter’s level of $6.04 billion. As of Mar 31, 2024, EOG had cash and cash equivalents worth $5.3 million and a long-term debt of $3.8 billion.
SLB SLB, the largest oilfield contractor, announced first-quarter 2024 earnings of 75 cents per share (excluding charges and credits), which beat the Zacks Consensus Estimate of 74 cents. The bottom line also increased from the year-ago quarter’s level of 63 cents.
SLB’s strong quarterly earnings resulted from higher evaluation and stimulation activities in the international market. As of Mar 31, 2024, the company had approximately $3.5 billion in cash and short-term investments and a long-term debt of $10.7 billion.
Independent oil refiner and marketer Valero Energy VLO reported first-quarter 2024 adjusted earnings of $3.82 per share, which beat the Zacks Consensus Estimate of $3.18, driven by a decline in total cost of sales. Adjusted operating income in the Refining segment totaled $1.7 billion, down from $4.1 billion in the year-ago quarter. The figure, however, was above our estimate of $1.6 billion.
Valero’s total cost of sales declined to $29.8 billion from the year-ago figure of $32.1 billion. The figure was also below our estimate of $30.4 billion, primarily due to lower material costs and operating expenses. The first-quarter capital investment totaled $661 million, of which $563 million was allotted for sustaining the business.
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