Magnolia Oil & Gas Corporation (MGY) missed the mark with its fourth-quarter 2023 adjusted net income, clocking in at 50 cents per share, below the Zacks Consensus Estimate of 54 cents. An unsettling decline from the year-ago quarter’s level of 86 cents was attributed to a dip in commodity prices.
Total revenues fell short as well, coming in at $322.6 million, missing the Zacks Consensus Estimate of $325 million. This marked a 4.9% drop from the $349 million recorded in the year-ago period.
Dividends and Buybacks
On Feb 5, 2024, South Texas-focused Magnolia declared a cash dividend hike to 11.5 cents per share of Class A common stock and a cash distribution of 13 cents per Class B unit, payable on May 1, 2024. The company also repurchased 2.5 million of its Class A common shares for $54.2 million in the reported quarter.
Production & Revenues Disappoint
Despite an increase in daily total output to 85,414 barrels of oil equivalent per day (boe/d) from the year-ago quarter, oil and gas production lingered below expectations. Notably, oil volumes failed to meet the mark at 35,466 barrels per day (bpd), falling short of estimates.
Moreover, a decline in average realized prices—from crude oil to natural gas—added to Magnolia’s disappointment. Average realized natural gas liquids price dropped by 22.6%, while the average realized natural gas price plummeted by a massive 61.2% year over year.
Capital Crunch
Magnolia’s cash and cash equivalents of $401.1 million and long-term debt of $392.8 million as of December 31, 2023, underscored a frugal balance sheet. Notably, the company beefed up its capital program, incurring a hefty $91.5 million on its capital expenses in the reported quarter. Operating expenses similarly ballooned to $184.5 million from $151.1 million in the prior-year period.
Future Outlook & Strategies
Magnolia’s foresight indicates substantial spending between $450 million and $480 million on D&C capital in 2024, with an emphasis on a higher first-quarter D&C capital expenditure. The company plans to leave its oil and natural gas production unhedged.
Notably, the expected diluted share count is forecasted to be around 205 million in the first quarter of 2024, 4% lower than the year-ago period.
Industry Buzz
Despite Magnolia’s challenges, investors should note the more optimistic outlook for the energy sector. Alternatives abound, with companies like Subsea 7 S.A. (SUBCY), Energy Transfer LP (ET), and Murphy USA Inc. (MUSA) presenting intriguing investment opportunities.
The energy industry buzzes with fervor, encapsulating the offshore know-how of Subsea 7 S.A., the independent energy pursuits of Energy Transfer LP, and the retail prowess of Murphy USA Inc.
Ultimately, the highs and lows of Magnolia’s Q4 performance are indicative of the volatile nature of the energy market, and as the dust settles, market watchers may very well see a phoenix rise from the ash of these recent struggles.
