(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
(Address of principal executive offices) | (Zip Code) | ||
Securities registered pursuant to section 12(b) of the Act: | ||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
☒ | Accelerated filer | ☐ | ||||
Non-accelerated filer | ☐ | Smaller reporting company | ||||
Emerging growth company | ||||||
Page | ||||
PART I. | ||||
Item 1. | ||||
Item 2. | ||||
Item 3. | ||||
Item 4. | ||||
PART II. | ||||
Item 1. | ||||
Item 1A. | ||||
Item 2. | ||||
Item 3. | ||||
Item 4. | ||||
Item 5. | ||||
Item 6. | ||||
June 30, 2019 | December 31, 2018 | |||||||
ASSETS | (Unaudited) | (Audited) | ||||||
CURRENT ASSETS | ||||||||
Cash | $ | $ | ||||||
Accounts receivable | ||||||||
Drilling advances | ||||||||
Other current assets | ||||||||
Total current assets | ||||||||
PROPERTY, PLANT AND EQUIPMENT | ||||||||
Oil and natural gas properties | ||||||||
Other | ||||||||
Accumulated depreciation, depletion and amortization | ( | ) | ( | ) | ||||
Total property, plant and equipment, net | ||||||||
OTHER ASSETS | ||||||||
Deferred financing costs, net | ||||||||
Equity method investment | ||||||||
Intangible assets, net | ||||||||
Other long-term assets | ||||||||
TOTAL ASSETS | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued liabilities | $ | $ | ||||||
Other current liabilities | ||||||||
Total current liabilities | ||||||||
LONG-TERM LIABILITIES | ||||||||
Long-term debt, net | ||||||||
Asset retirement obligations, net of current | ||||||||
Deferred taxes, net | ||||||||
Other long-term liabilities | ||||||||
Total long-term liabilities | ||||||||
COMMITMENTS AND CONTINGENCIES (Note 14) | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Class A Common Stock, $0.0001 par value, 1,300,000 shares authorized, 158,892 shares issued and outstanding | ||||||||
Class B Common Stock, $0.0001 par value, 225,000 shares authorized, 91,790 shares issued and outstanding | ||||||||
Additional paid-in capital | ||||||||
Retained earnings | ||||||||
Noncontrolling interest | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
Successor | Predecessor | ||||||||||||||||
Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 | ||||||||||||||
REVENUES | |||||||||||||||||
Oil revenues | $ | $ | $ | $ | |||||||||||||
Natural gas revenues | |||||||||||||||||
Natural gas liquids revenues | |||||||||||||||||
Total revenues | |||||||||||||||||
OPERATING EXPENSES | |||||||||||||||||
Lease operating expenses | |||||||||||||||||
Gathering, transportation and processing | |||||||||||||||||
Taxes other than income | |||||||||||||||||
Exploration expense | |||||||||||||||||
Asset retirement obligation accretion | ( | ) | |||||||||||||||
Depreciation, depletion and amortization | |||||||||||||||||
Amortization of intangible assets | |||||||||||||||||
General and administrative expenses | |||||||||||||||||
Transaction related costs | |||||||||||||||||
Total operating costs and expenses | |||||||||||||||||
OPERATING INCOME | |||||||||||||||||
OTHER INCOME (EXPENSE) | |||||||||||||||||
Income from equity method investee | |||||||||||||||||
Interest expense, net | ( | ) | ( | ) | |||||||||||||
Loss on derivatives, net | ( | ) | ( | ) | |||||||||||||
Other income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
INCOME BEFORE INCOME TAXES | |||||||||||||||||
Income tax expense | |||||||||||||||||
NET INCOME | |||||||||||||||||
LESS: Net income attributable to noncontrolling interest | |||||||||||||||||
NET INCOME ATTRIBUTABLE TO CLASS A COMMON STOCK | $ | $ | $ | $ | |||||||||||||
NET INCOME PER COMMON SHARE | |||||||||||||||||
Basic | $ | $ | |||||||||||||||
Diluted | $ | $ | |||||||||||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | |||||||||||||||||
Basic | |||||||||||||||||
Diluted | |||||||||||||||||
Predecessor | |||
BALANCE, DECEMBER 31, 2017 | $ | ||
Parents’ contribution, net | |||
Net income | |||
Balance – March 31, 2018 | $ | ||
Parents’ distributions, net | ( | ) | |
Net income | |||
Balance – June 30, 2018 | $ | ||
Class A Common Stock | Class B Common Stock | Additional Paid In Capital | Retained Earnings | Total Stockholders’ Equity | Noncontrolling Interest | Total Equity | |||||||||||||||||||
Shares | Value | Shares | Value | ||||||||||||||||||||||
Balance, December 31, 2018 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Stock based compensation expense | — | — | — | — | — | — | |||||||||||||||||||
Changes in ownership interest adjustment | — | — | — | — | ( | ) | — | ( | ) | ( | ) | ||||||||||||||
Final settlement adjustment related to Business Combination | ( | ) | — | ( | ) | — | ( | ) | — | ( | ) | ( | ) | ( | ) | ||||||||||
Contributions from noncontrolling interest owner | — | — | — | — | — | — | — | ||||||||||||||||||
Net income | — | — | — | — | — | ||||||||||||||||||||
Balance, March 31, 2019 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Stock based compensation expense | — | — | — | — | — | — | |||||||||||||||||||
Changes in ownership interest adjustment | — | — | — | — | — | ||||||||||||||||||||
Shares issued in connection with acquisition | — | — | — | — | — | ||||||||||||||||||||
Offering expenses incurred in connection with warrants exchange | — | — | — | — | ( | ) | — | ( | ) | — | ( | ) | |||||||||||||
Distributions to noncontrolling interest owner | — | — | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||
Net income | — | — | — | — | — | ||||||||||||||||||||
Balance, June 30, 2019 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Successor | Predecessor | |||||||
Six months ended June 30, 2019 | Six months ended June 30, 2018 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | $ | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation, depletion and amortization | ||||||||
Amortization of intangible assets | ||||||||
Exploration expense, non-cash | ||||||||
Asset retirement obligations accretion expense | ||||||||
Amortization of deferred financing costs | ||||||||
Non-cash interest expense, net | ||||||||
Loss on derivatives, net | ||||||||
Cash settlements of matured derivative contracts | ( | ) | ||||||
Deferred taxes | ||||||||
Stock based compensation | ||||||||
Other | ( | ) | ( | ) | ||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | ( | ) | ( | ) | ||||
Prepaid expenses and other assets | ||||||||
Accounts payable and accrued liabilities | ( | ) | ||||||
Drilling advances | ||||||||
Other assets and liabilities, net | ( | ) | ( | ) | ||||
Net cash provided by operating activities | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Acquisition of EnerVest properties, final settlement | ||||||||
Acquisitions, other | ( | ) | ( | ) | ||||
Additions to oil and natural gas properties | ( | ) | ( | ) | ||||
Purchase of and contributions to equity method investment | ( | ) | ||||||
Other investing | ( | ) | ||||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
CASH FLOW FROM FINANCING ACTIVITIES | ||||||||
Parents’ contribution, net | ||||||||
Noncontrolling interest contributions and distributions | ||||||||
Other financing activities | ( | ) | ||||||
Net cash provided by financing activities | ||||||||
NET CHANGE IN CASH | ( | ) | ||||||
Cash – Beginning of period | ||||||||
Cash – End of period | $ | $ | ||||||
SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
Cash paid for income taxes | ||||||||
Cash paid for interest | ||||||||
Supplemental non-cash investing and financing activity | ||||||||
Accruals or liabilities for capital expenditures | ||||||||
Equity issuances in connection with acquisition | ||||||||
Supplemental non-cash lease operating activities | ||||||||
Right-of-use assets obtained in exchange for operating lease obligations | ||||||||
• | certain right, title, and interest in certain oil and natural gas assets located primarily in the Karnes County portion of the Eagle Ford Shale in South Texas (the “Karnes County Assets” and, such business the “Karnes County Business”) pursuant to that certain Contribution and Merger Agreement (as subsequently amended, the “Karnes County Contribution Agreement”), by and among the Company, Magnolia LLC and certain affiliates (the “Karnes County Contributors”) of EnerVest Ltd. (“EnerVest”); |
• | certain right, title, and interest in certain oil and natural gas assets located primarily in the Giddings Field of the Austin Chalk (the “Giddings Assets”) pursuant to that certain Purchase and Sale Agreement (the “Giddings Purchase Agreement”) by and among Magnolia LLC and certain affiliates of EnerVest (the “Giddings Sellers”); and |
• | a |
(in thousands) | ||||
Purchase Consideration: | ||||
Cash consideration | $ | |||
Stock consideration (1) | ||||
Fair value of contingent earnout purchase consideration (2) | ||||
Total purchase price consideration | $ | |||
(1) | At closing of the Business Combination, the Karnes County Contributors received |
(2) | Pursuant to ASC 805, ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging,” the Karnes County earnout consideration was valued at fair value as of the Closing Date and was classified in stockholders’ equity. The Giddings earnout was valued at fair value as of the Closing Date and was classified as a liability. The fair value of the earnouts was determined using the Monte Carlo simulation valuation method based on Level 3 inputs in the fair value hierarchy. |
(in thousands) | ||||
Fair value of assets acquired | ||||
Accounts receivable | $ | |||
Other current assets | ||||
Oil and natural gas properties (1) | ||||
Ironwood equity investment | ||||
Total fair value of assets acquired | ||||
Fair value of liabilities assumed | ||||
Accounts payable and other current liabilities | ( | ) | ||
Asset retirement obligations | ( | ) | ||
Deferred tax liability | ( | ) | ||
Fair value of net assets acquired | $ | |||
(1) | The fair value measurements of oil and natural gas properties and asset retirement obligations are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair values of oil and natural gas properties and asset retirement obligations were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation of oil and natural gas properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital rate. |
(in thousands) | ||||
Fair value of assets acquired | ||||
Other current assets | $ | |||
Oil and natural gas properties (1) | ||||
Total fair value of assets acquired | ||||
Fair value of liabilities assumed | ||||
Asset retirement obligations and other current liabilities | ( | ) | ||
Fair value of net assets acquired | $ | |||
(1) | The fair value measurements of oil and natural gas properties and asset retirement obligations are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair values of oil and natural gas properties and asset retirement obligations were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation of oil and natural gas properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital rate. These inputs required significant judgments and estimates by management at the time of the valuation. |
• | On May 31, 2019, the Company completed the acquisition of certain oil and gas assets located in the Company’s Karnes County Assets for approximately $ |
• | On February 5, 2019, Magnolia Operating formed a joint venture, Highlander Oil & Gas Holdings LLC (“Highlander”), to complete the acquisition of a |
(in thousands) | ||||
Purchase price allocation: | ||||
Accounts receivable | $ | |||
Proved oil and natural gas properties | ||||
Unproved oil and natural gas properties | ||||
Accounts payable and accrued liabilities | ( | ) | ||
Asset retirement obligations | ( | ) | ||
$ | ||||
June 30, 2019 | ||||||||
(In thousands) | Carrying Value | Fair Value | ||||||
Long-term debt | $ | $ | ||||||
(In thousands) | June 30, 2019 | ||
Non-compete intangible assets | $ | ||
Accumulated amortization | ( | ) | |
Intangible assets, net | $ | ||
Weighted average amortization period (in years) | |||
Successor | Predecessor | |||||||||||||||
(In thousands) | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 | ||||||||||||
Current: | ||||||||||||||||
Federal | $ | ( | ) | $ | $ | $ | ||||||||||
State | ||||||||||||||||
Deferred: | ||||||||||||||||
Federal | ||||||||||||||||
State | ( | ) | ( | ) | ||||||||||||
Total provision | $ | $ | $ | $ | ||||||||||||
(In thousands) | June 30, 2019 | |||
Revolving credit facility | $ | |||
6.0% Senior Notes due 2026 | ||||
Total long-term debt | ||||
Less: unamortized deferred financing cost | ( | ) | ||
Total debt, net | $ | |||
(In thousands) | June 30, 2019 | ||
Operating Leases | |||
Operating lease assets | $ | ||
Operating lease liabilities - current | $ | ||
Operating lease liabilities - long-term | |||
Total operating lease liabilities | $ | ||
Weighted Average Remaining Lease Term (in years) | |||
Weighted Average Discount Rate | % | ||
(In thousands) | |||
Maturity of Lease Liabilities(1) | Operating Leases | ||
2019 (remaining) | $ | ||
2020 | |||
2021 | |||
2022 | |||
2023 | |||
After 2023 | |||
Total lease payments | $ | ||
Less: interest | ( | ) | |
Present value of lease liabilities | $ | ||
(1) | As of December 31, 2018, minimum future contractual payments for long-term operating leases under the scope of ASC 840 were $ |
Restricted Stock Units | Weighted Average Grant Date Fair Value | |||||
Unvested restricted stock units, beginning of period | $ | |||||
Granted | $ | |||||
Vested | ||||||
Forfeited | ||||||
Unvested restricted stock units, end of period | $ | |||||
Performance Stock Units | Weighted Average Grant Date Fair Value | |||||
Unvested performance stock units, beginning of period | $ | |||||
Granted | $ | |||||
Vested | ||||||
Forfeited | ||||||
Unvested performance stock units, end of period | $ | |||||
Grant Date Fair Value Assumptions | |
Expected term (in years) | 2.67 - 2.85 |
Expected volatility | 31.58% - 33.61% |
Risk-free interest rate | 2.29% - 2.48% |
(in thousands, except per share data) | Three months ended June 30, 2019 | Six months ended June 30, 2019 | |||||
Basic: | |||||||
Net Income attributable to Class A Common Stock | $ | $ | |||||
Weighted average number of common shares outstanding during the period | |||||||
Net income per common share - basic | $ | $ | |||||
Diluted: | |||||||
Net Income attributable to Class A Common Stock | $ | $ | |||||
Basic weighted average number of common shares outstanding during the period | |||||||
Add: Dilutive effect of warrants and stock based compensation | |||||||
Diluted weighted average number of common shares outstanding during the period | |||||||
Net income per common share - diluted | $ | $ | |||||
• | the market prices of oil, natural gas, natural gas liquids (“NGLs”), and other products or services; |
• | the supply and demand for oil, natural gas, NGLs, and other products or services; |
• | production and reserve levels; |
• | drilling risks; |
• | economic and competitive conditions; |
• | the availability of capital resources; |
• | capital expenditures and other contractual obligations; |
• | currency exchange rates; |
• | weather conditions; |
• | inflation rates; |
• | the availability of goods and services; |
• | legislative, regulatory, or policy changes; |
• | cyber attacks; |
• | occurrence of property acquisitions or divestitures; |
• | the integration of acquisitions; and |
• | the securities or capital markets and related risks such as general credit, liquidity, market, and interest-rate risks. |
• | For the three and six month period ended June 30, 2018, the results of operations reflect the results of solely the Predecessor, which, as described above, consists of only the results of the Karnes County Business, including, as applicable, its ownership of the Ironwood Interests, when the Predecessor was not owned by the Company, and do not include the results of the Giddings Assets; |
• | The results of operations of the Predecessor were not previously accounted for as the results of operations of a stand-alone legal entity, and accordingly have been carved out, as appropriate, for the periods presented. The results of operations of the Predecessor therefore include a portion of indirect costs for salaries and benefits, depreciation, rent, accounting, legal services, and other expenses. In addition to the allocation of indirect costs, the results of operations reflect certain agreements executed by the Karnes County Contributors for the benefit of the Predecessor, including price risk management instruments. For more information, please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. These allocations may not be indicative of the cost of future operations or the amount of future allocations; |
• | The Predecessor completed the acquisition of certain assets from GulfTex Energy III, L.P. and GulfTex Energy IV, L.P. on March 1, 2018 during the Predecessor Period, and accordingly the results of operations of the Predecessor reflect the impact of the assets acquired in that acquisition only from their respective acquisition date; |
• | As a corporation, the Company is subject to U.S. federal income taxes at a statutory rate of 21% of pretax earnings whereas the Karnes County Contributors were treated as partnerships for income tax purposes. As a result, items of income, expense, gains and losses flowed through to the owners of the Karnes County Contributors and were taxed at the owner level. Accordingly, no U.S. tax provision for federal income taxes is included in the financial statements of the Predecessor; |
• | On August 31, 2018, the Company acquired substantially all of the South Texas assets of Harvest Oil & Gas Corporation (the “Harvest Acquisition”) for approximately $133.3 million in cash and 4.2 million newly issued shares of the Company’s Class A Common Stock. On March 14, 2019, Magnolia consummated the final settlement with Harvest receiving a cash payment of $1.4 million. The Harvest Acquisition added an undivided working interest across a portion of the Karnes County Assets and all of the Giddings Assets; |
• | On February 5, 2019, Magnolia Operating formed a joint venture, Highlander Oil & Gas Holdings LLC, to complete the acquisition of a 72% working interest in the Eocene-Tuscaloosa Zone, Ultra Deep Structure gas well located in St. Martin Parish, Louisiana (the “Highlander Well”). |
Successor | Predecessor | ||||||||
(In thousands, except per unit data) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | |||||||
Production: | |||||||||
Oil (MBbls) | 3,189 | 2,496 | |||||||
Natural gas (MMcf) | 10,057 | 3,554 | |||||||
NGLs (MBbls) | 1,060 | 517 | |||||||
Total (Mboe) | 5,925 | 3,605 | |||||||
Average daily production: | |||||||||
Oil (Bbls/d) | 35,044 | 27,429 | |||||||
Natural gas (Mcf/d) | 110,516 | 39,055 | |||||||
NGLs (Bbls/d) | 11,648 | 5,681 | |||||||
Total (boe/d) | 65,111 | 39,619 | |||||||
Revenues: | |||||||||
Oil revenues | $ | 204,513 | $ | 176,481 | |||||
Natural gas revenues | 22,590 | 10,115 | |||||||
Natural gas liquids revenues | 15,855 | 13,391 | |||||||
Total revenues | $ | 242,958 | $ | 199,987 | |||||
Average Price: | |||||||||
Oil (per barrel) | $ | 64.13 | $ | 70.71 | |||||
Natural gas (per Mcf) | 2.25 | 2.85 | |||||||
NGLs (per barrel) | 14.96 | 25.90 | |||||||
Successor | Predecessor | ||||||||
(In thousands, except per unit data) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | |||||||
Operating Expenses: | |||||||||
Lease operating expenses | $ | 24,895 | $ | 10,546 | |||||
Gathering, transportation and processing | 7,431 | 6,211 | |||||||
Taxes other than income | 13,091 | 12,907 | |||||||
Exploration expenses | 3,617 | 350 | |||||||
Asset retirement obligations accretion | 1,373 | (13 | ) | ||||||
Depreciation, depletion and amortization | 126,102 | 63,353 | |||||||
Amortization of intangible assets | 3,626 | — | |||||||
General and administrative expenses | 19,106 | 5,301 | |||||||
Transaction related costs | 85 | — | |||||||
Total operating costs and expenses | $ | 199,326 | $ | 98,655 | |||||
Other Income (Expense): | |||||||||
Income from equity method investee | $ | 128 | $ | 688 | |||||
Interest expense, net | (7,299 | ) | — | ||||||
Loss on derivatives, net | — | (14,800 | ) | ||||||
Other expense, net | (13 | ) | (198 | ) | |||||
Total other expense | $ | (7,184 | ) | $ | (14,310 | ) | |||
Average Operating Costs per Boe: | |||||||||
Lease operating expenses | $ | 4.20 | $ | 2.93 | |||||
Gathering, transportation and processing | 1.25 | 1.72 | |||||||
Taxes other than income | 2.21 | 3.58 | |||||||
Exploration costs | 0.61 | 0.10 | |||||||
Asset retirement obligation accretion | 0.23 | — | |||||||
Depreciation, depletion and amortization | 21.28 | 17.57 | |||||||
Amortization of intangible assets | 0.61 | — | |||||||
General and administrative expenses | 3.22 | 1.47 | |||||||
Transaction related costs | 0.01 | — | |||||||
Successor | Predecessor | ||||||||
(In thousands, except per unit data) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |||||||
Production: | |||||||||
Oil (MBbls) | 6,095 | 4,858 | |||||||
Natural gas (MMcf) | 19,820 | 6,442 | |||||||
NGLs (MBbls) | 2,144 | 937 | |||||||
Total (Mboe) | 11,542 | 6,869 | |||||||
Average daily production: | |||||||||
Oil (Bbls/d) | 33,674 | 26,840 | |||||||
Natural gas (Mcf/d) | 109,503 | 35,591 | |||||||
NGLs (Bbls/d) | 11,845 | 5,177 | |||||||
Total (boe/d) | 63,770 | 37,949 | |||||||
Revenues: | |||||||||
Oil revenues | $ | 376,167 | $ | 330,637 | |||||
Natural gas revenues | 49,965 | 18,489 | |||||||
Natural gas liquids revenues | 35,499 | 23,173 | |||||||
Total revenues | $ | 461,631 | $ | 372,299 | |||||
Average Price: | |||||||||
Oil (per barrel) | $ | 61.72 | $ | 68.06 | |||||
Natural gas (per Mcf) | 2.52 | 2.87 | |||||||
NGLs (per barrel) | 16.56 | 24.73 | |||||||
Successor | Predecessor | ||||||||
(In thousands, except per unit data) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |||||||
Operating Expenses: | |||||||||
Lease operating expenses | $ | 46,413 | $ | 19,832 | |||||
Gathering, transportation and processing | 16,746 | 10,689 | |||||||
Taxes other than income | 27,492 | 21,676 | |||||||
Exploration expenses | 6,093 | 452 | |||||||
Asset retirement obligations accretion | 2,701 | 83 | |||||||
Depreciation, depletion and amortization | 242,048 | 114,714 | |||||||
Amortization of intangible assets | 7,253 | — | |||||||
General and administrative expenses | 35,302 | 11,009 | |||||||
Transaction related costs | 438 | — | |||||||
Total operating costs and expenses | $ | 384,486 | $ | 178,455 | |||||
Other Income (Expense): | |||||||||
Income from equity method investee | $ | 516 | $ | 1,056 | |||||
Interest expense, net | (14,715 | ) | — | ||||||
Loss on derivatives, net | — | (21,992 | ) | ||||||
Other expense, net | (11 | ) | (74 | ) | |||||
Total other expense | $ | (14,210 | ) | $ | (21,010 | ) | |||
Average Operating Costs per Boe: | |||||||||
Lease operating expenses | $ | 4.02 | $ | 2.89 | |||||
Gathering, transportation and processing | 1.45 | 1.56 | |||||||
Taxes other than income | 2.38 | 3.16 | |||||||
Exploration costs | 0.53 | 0.07 | |||||||
Asset retirement obligation accretion | 0.23 | 0.01 | |||||||
Depreciation, depletion and amortization | 20.97 | 16.70 | |||||||
Amortization of intangible assets | 0.63 | — | |||||||
General and administrative expenses | 3.06 | 1.60 | |||||||
Transaction related costs | 0.04 | — | |||||||
Successor | Predecessor | ||||||||
(In thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |||||||
Net cash provided by operating activities | $ | 309,391 | $ | 235,664 | |||||
Net cash used in investing activities | (355,210 | ) | (319,844 | ) | |||||
Net cash provided by financing activities | 6,770 | 84,180 | |||||||
Exhibit Number | Description | |
3.1 | ||
3.2 | ||
4.1 | ||
10.1* | ||
10.2 | ||
31.1* | ||
31.2* | ||
32.1* | ||
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |
* | Filed herewith. |
** | Furnished herewith. |
MAGNOLIA OIL & GAS CORPORATION | |||
Date: August 7, 2019 | By: | /s/ Stephen Chazen | |
Stephen Chazen | |||
Chief Executive Officer (Principal Executive Officer) | |||
Date: August 7, 2019 | By: | /s/ Christopher Stavros | |
Christopher Stavros | |||
Chief Financial Officer (Principal Financial Officer) | |||
Participant: | |
Date of Grant: | |
Total Number of Restricted Stock Units: | |
Vesting Commencement Date: | ______________________________ (“Vesting Commencement Date”) |
Vesting Schedule: | Subject to the terms and conditions of the Agreement, the Plan and the other terms and conditions set forth herein, the RSUs shall vest on the earlier to occur of: (i) the day preceding the next annual meeting of stockholders of the Company at which directors are elected or (ii) the first anniversary of the Vesting Commencement Date, in each case, so long as you remain a director or service provider to the Company or an Affiliate, as applicable, from the Date of Grant through such date. Notwithstanding the foregoing, in the event that, in connection with or following a Change in Control, you cease to serve as a director or a service provider to the Company or an Affiliate, the RSUs will vest upon such cessation of service. In accordance with of Section 7(b) the Plan, you may elect to defer settlement of the RSUs until you are no longer a director or service provider to the Company or an Affiliate or a Change in Control. Any deferral election must be made in compliance with such rules and procedures as the Committee deems advisable. |
Settlement Event: | Stock will become issuable and Dividend Equivalents payable on the date elected by you on a timely submitted Settlement Election Form or, if no such form is timely submitted by you, then on the date of vesting of the RSUs (such date or event, a “Settlement Event”). Absent a provision in the Agreement or the Plan to the contrary, Stock and Dividend Equivalents with respect to vested RSUs will be delivered to you no later than 60 days following the applicable Settlement Event. |
MAGNOLIA OIL & GAS CORPORATION | ||
By: | ||
Title: | ||
Name: | ||
Name: [Grantee Name] |
DIRECTOR |
[Grantee Name] |
Date: |
1. | I have reviewed this Quarterly Report on Form 10-Q of Magnolia Oil & Gas Corporation (the "registrant"); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: August 7, 2019 | By: | /s/ Stephen Chazen | ||
Stephen Chazen | ||||
Chief Executive Officer (Principal Executive Officer) | ||||
1. | I have reviewed this Quarterly Report on Form 10-Q of Magnolia Oil & Gas Corporation (the "registrant"); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: August 7, 2019 | By: | /s/ Christopher Stavros | ||
Christopher Stavros | ||||
Chief Financial Officer (Principal Financial Officer) | ||||
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 7, 2019 | By: | /s/ Stephen Chazen | ||
Stephen Chazen | ||||
Chief Executive Officer (Principal Executive Officer) | ||||
Date: August 7, 2019 | By: | /s/ Christopher Stavros | ||
Christopher Stavros | ||||
Chief Financial Officer (Principal Financial Officer) | ||||
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Jun. 30, 2019 |
Dec. 31, 2018 |
Jul. 31, 2018 |
|---|---|---|---|
| Class A | |||
| Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 | $ 0.0001 |
| Common stock, shares authorized (in shares) | 1,300,000,000 | 1,300,000,000 | |
| Common stock, shares issued (in shares) | 158,892,000 | 158,892,000 | |
| Common stock, shares outstanding (in shares) | 158,892,000 | 158,892,000 | |
| Class B | |||
| Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 | $ 0.0001 |
| Common stock, shares authorized (in shares) | 225,000,000.0 | 225,000,000 | |
| Common stock, shares issued (in shares) | 91,790,000 | 91,790,000 | |
| Common stock, shares outstanding (in shares) | 91,790,000 | 91,790,000 |
Description of Business and Basis of Presentation |
6 Months Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2019 | |||||||||||||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||
| Description of Business and Basis of Presentation | Description of Business and Basis of Presentation Organization and General Magnolia Oil & Gas Corporation (formerly TPG Pace Energy Holdings Corp.) (the “Company” or “Magnolia”) was incorporated in Delaware on February 14, 2017. On March 15, 2018, the Company formed three wholly owned subsidiaries: Magnolia Oil & Gas Parent LLC (“Magnolia LLC”), Magnolia Oil & Gas Intermediate LLC (“Magnolia Intermediate”), and Magnolia Oil & Gas Operating LLC (“Magnolia Operating”), all of which are Delaware limited liability companies formed in contemplation of the Business Combination (as defined herein). Business Combination On July 31, 2018 (the “Closing Date”), the Company and Magnolia LLC consummated the acquisition of the following:
The Company consummated the Business Combination for an aggregate consideration of approximately $1.2 billion in cash, 31.8 million shares of the Company’s Class A Common Stock, par value $0.0001 per share (the “Class A Common Stock”), 83.9 million shares of the Company’s Class B Common Stock, par value $0.0001 per share (the “Class B Common Stock”) and a corresponding number of units in Magnolia LLC (the “Magnolia LLC Units”), as well as certain earnout rights payable in a combination of cash and additional equity securities in the Company. In connection with the Business Combination, Magnolia issued and sold 35.5 million shares of Class A Common Stock in a private placement to certain qualified institutional buyers and accredited investors for gross proceeds of $355.0 million (the “PIPE Investment”). In addition, Magnolia Operating and Magnolia Oil & Gas Finance Corp., a wholly owned subsidiary of Magnolia Operating (“Finance Corp.” and, together with Magnolia Operating, the “Issuers”), issued and sold $400.0 million aggregate principal amount of 6.0% Senior Notes due 2026 (the “2026 Senior Notes”). The proceeds of the PIPE Investment and the offering of 2026 Senior Notes were used to fund a portion of the cash consideration required to effect the Business Combination. Business Operations and Strategy Magnolia is an independent oil and natural gas company engaged in the acquisition, development, exploration and production of oil, natural gas, and NGL reserves. The Company’s oil and natural gas properties are located primarily in Karnes County and the Giddings Field 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 In accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company is the acquirer in the Business Combination for accounting purposes and the Karnes County Business, the Giddings Assets, and the Ironwood Interests are the acquirees. The Karnes County Business including, as applicable, its ownership of the Ironwood Interests, was deemed the “Predecessor” for periods prior to the Business Combination, and does not include the consolidation of the Company and the Giddings Assets. Although the Karnes County Contributors are not under common control, each are managed by the same managing general partner, EnerVest, and as such, these Predecessor financial statements have been presented on a combined basis for financial reporting purposes. For the period on or after the Business Combination, the Company, including the combination of the Karnes County Business, the Giddings Assets, and the Ironwood Interests, is the “Successor.” The financial statements and certain footnote presentations separate the Company’s presentations into two distinct periods, the period before the consummation of the Business Combination, which includes the three and six months ended June 30, 2018 (the “Predecessor Period”) and the period after the Business Combination (the “Successor Period”), which includes the three and six months ended June 30, 2019. The Business Combination was accounted for using the acquisition method of accounting and the Successor financial statements reflect a new basis of accounting that is based on the fair value of assets acquired and liabilities assumed. As a result of the inclusion of the Giddings Assets, the new basis of accounting, and certain other items that affect comparability, the Company’s financial information prior to the Business Combination is not comparable to its financial information subsequent to the Business Combination. The assets, liabilities, revenues, expenses, and cash flows related to the Karnes County Business were not previously separately accounted for as a standalone legal entity and have been carved out of the overall assets, liabilities, revenues, expenses and cash flows from the Karnes County Contributors as appropriate. In addition, Parents’ Net Investment represents the Karnes County Contributors’ interest in the recorded net assets of the Karnes County Business and represents the cumulative net investment of the Karnes County Contributors’ in the Karnes County Business through the dates presented, inclusive of cumulative operating results. The Karnes County Contributors utilize EnerVest’s centralized processes and systems for its treasury services and the Karnes County Business’ cash activity was commingled with other oil and gas assets that were not part of the Business Combination. As such, the net results of the cash transactions between the Karnes County Business and the Karnes County Contributors are reflected as Parents’ Net Investment in the accompanying Predecessor balance sheet. The Predecessor financial statements also include a portion of indirect costs for salaries and benefits, rent, accounting, legal services, and other expenses. In addition to the allocation of indirect costs, the financial statements reflect certain agreements executed by the Karnes County Contributors for the benefit of the Karnes County Business, including price risk management instruments. The allocations methodologies for significant allocated items include: Corporate G&A - EnerVest, as managing general partner of the Karnes County Contributors, provided management, accounting, and advisory services to the Karnes County Contributors in exchange for a quarterly management fee based on the Karnes County Contributors’ investor commitments, which were used, in part, to acquire the Karnes County Business as well as other oil and natural properties that were not part of the Business Combination. As such, the management fee was allocated to the Karnes County Business using a ratio of asset acquisitions value to total asset acquisitions completed by the Karnes County Contributors, for the Predecessor Period. Derivatives - Certain Karnes County Contributors entered into financial instruments to manage the Karnes County Business’ exposure to changes in commodity prices for the Karnes County Business as well as other oil and natural gas properties that were not part of the Business Combination, on a combined basis. The commodity derivative activity was allocated to the Karnes County Business using a ratio of expected crude oil and condensate, natural gas liquids (“NGLs”), and natural gas volumes produced, on an equivalents basis, by the Karnes County Business to the Karnes County Contributors’ total expected crude oil and condensate, NGLs, and natural gas produced, on an equivalents basis, for the Predecessor Period. Indebtedness - The Karnes County Business did not historically have outstanding indebtedness, but its oil and natural gas properties were collateral to various credit facilities held by the Karnes County Contributors/EnerVest. Amounts outstanding on these credit facilities have not been allocated to the Karnes County Business as they were not directly attributable to the Karnes County Business. Management believes the allocation methodologies used are reasonable and result in an allocation of the indirect costs and other items to operate the Karnes County Business as if it were a stand-alone entity. These allocations, however, may not be indicative of the cost of future operations or the amount of future allocations. Direct costs were included at the historical amounts related to each reported period. The accompanying unaudited interim consolidated and combined financial statements have been prepared in accordance with GAAP and in accordance with the rules and regulations of the SEC. Accordingly, certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for the full year or any future periods. The unaudited interim consolidated financial statements, including the Predecessor financial statements, should be read in conjunction with the information included in or incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
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Summary of Significant Accounting Policies |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Accounting Policies [Abstract] | |
| Summary of Significant Accounting Policies | Summary of Significant Accounting Policies As of June 30, 2019, the Company’s significant accounting policies are consistent with those discussed in Note 2 - Summary of Significant Accounting Policies of its consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, with the exception of Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” and as noted below. Leases In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-02, Leases, which requires lessees to recognize a right of use asset and a lease liability on their balance sheet for all leases, including operating leases, with a term of greater than 12 months. In July 2018, the FASB issued ASU 2018-11, which adds a transition option permitting entities to apply the provisions of the new standard at its adoption date instead of the earliest comparative period presented in the consolidated financial statements. Under this transition option, comparative reporting would not be required, and the provisions of the standard would be applied prospectively to leases in effect at the date of adoption. The Company elected the package of transition practical expedients provided by the new standard that allow the Company to not reassess under the new standard its prior conclusions about lease identification, classification related to contracts that commenced prior to adoption, and to apply the standard prospectively to all new or modified land easements and rights-of-way. The Company has also elected a policy to not recognize right of use assets and lease liabilities related to short-term leases. The Company has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. Magnolia adopted this standard on January 1, 2019 and recognized right of use assets and lease liabilities for certain commitments primarily related to real estate, vehicles, and field equipment, while prior reporting periods are presented in accordance with historical accounting treatment under ASC Topic 840, Leases (“ASC 840”). The Company determines if an arrangement is a lease at inception. Operating leases are included in other long-term assets, other current liabilities, and other long-term liabilities in Magnolia’s consolidated balance sheet as of June 30, 2019. Operating lease right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Magnolia’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expenses for lease payments are recognized on a straight-line basis over the lease term. For more information, refer to Note 9 - Leases. Recent Accounting Pronouncements In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). The amendments in the update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The Company early adopted ASU 2018-15 effective April 1, 2019, with prospective application. The adoption did not have a material impact on the Company’s consolidated financial statements.
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Acquisitions |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisitions | Acquisitions Acquisitions (Successor) EnerVest Business Combination As discussed in Note 1 - Description of Business and Basis of Presentation, on July 31, 2018, the Company consummated the Business Combination contemplated by the Business Combination Agreements. The Business Combination Agreements and the Business Combination were approved by the Company’s stockholders on July 17, 2018. At the closing of the Business Combination, the Karnes County Contributors received 83.9 million shares of the Company’s Class B Common Stock and an equivalent number of Magnolia LLC Units, which, together, are exchangeable on a one-for-one basis for shares of the Company’s Class A Common Stock, subject to certain conditions; 31.8 million shares of Class A Common Stock; and approximately $911.5 million in cash. The Giddings Sellers received approximately $282.7 million in cash. The Ironwood Sellers received $25.0 million in cash in exchange for the Ironwood Interests. On March 29, 2019, Magnolia and EnerVest consummated the final settlement pursuant to the Contribution and Merger Agreement and as otherwise agreed to by the parties, with Magnolia receiving a net cash payment of $4.3 million and the Karnes County Contributors forfeiting 0.5 million shares of Class A Common Stock, 1.6 million shares of Class B Common Stock to Magnolia, and a corresponding number of Magnolia LLC Units. The Business Combination has been accounted for using the acquisition method. The acquisition method of accounting is based on ASC 805 “Business Combinations,” and uses the fair value concepts defined in ASC 820. ASC 805 requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date by the Company. Contingent Consideration Pursuant to the Karnes County Contribution Agreement, for a period of five years following the Closing Date, the Karnes County Contributors were entitled to receive an aggregate of up to 13.0 million additional shares of Class A Common Stock or shares of Class B Common Stock (and a corresponding number of Magnolia LLC Units) based on certain EBITDA and free cash flow or stock price thresholds. As of December 31, 2018, the Company had met the defined stock price thresholds and, as a result, the Company had issued an aggregate of 3.6 million additional shares of Class A Common Stock and 9.4 million additional shares of Class B Common Stock (and a corresponding number of Magnolia LLC Units) to the Karnes County Contributors. Pursuant to the Giddings Purchase Agreement, until December 31, 2021, the Giddings Sellers were entitled to receive an aggregate of up to $47.0 million in cash earnout payments based on certain net revenue thresholds. On September 28, 2018, the Company paid the Giddings Sellers a cash payment of $26.0 million to fully settle the earnout obligation. The purchase consideration for the Business Combination was as follows:
The following table summarizes the allocation of the purchase consideration to the assets acquired and liabilities assumed on the acquisition date:
The Company incurred $24.8 million in transaction costs associated with the Business Combination. The Company also incurred a total of $23.5 million of debt issuance costs in connection with the consummation of the Business Combination related to the establishment of the RBL Facility (as defined herein) and the issuance of the 2026 Senior Notes. Non-Compete On the Closing Date, the Company and EnerVest, separate and apart from the Business Combination, entered into a non-compete agreement (the “Non-Compete”) restricting EnerVest and certain of its affiliates from competing with the Company in certain counties comprising the Eagle Ford Shale following the Closing Date. An affiliate of EnerVest will have the right to receive 4.0 million shares of Class A Common Stock issuable in two tranches of 2.0 million shares in two and one half and four years from the Closing Date provided EnerVest does not compete with Magnolia in the Eagle Ford Shale until the later of July 31, 2022 or the date the Services Agreement is terminated. For more discussion on the Non-Compete, refer to Note 6 - Intangible Assets. Harvest Acquisition On August 31, 2018, the Company completed the acquisition of substantially all of Harvest Oil & Gas Corporation’s South Texas assets for approximately $133.3 million in cash and 4.2 million newly issued shares of the Company’s Class A Common Stock for a total consideration of $191.5 million. The acquisition added an undivided working interest across a portion of Magnolia’s existing Karnes County Assets and all of the Company’s existing Giddings Assets. On March 14, 2019, Magnolia consummated the final settlement with Harvest receiving a cash payment of $1.4 million. The transaction was accounted for as a business combination. The following table summarizes the allocation of the purchase consideration to the assets acquired and liabilities assumed:
Other Acquisitions
Acquisitions (Predecessor) Subsequent GulfTex Acquisition On March 1, 2018, the Predecessor acquired certain oil and natural gas properties located in the Eagle Ford Shale from GulfTex Energy III, L.P. and GulfTex Energy IV, L.P. for an adjusted purchase price of approximately $150.1 million, net of customary closing adjustments (the “Subsequent GulfTex Acquisition”). The recognized fair value of identifiable assets and acquired liabilities assumed in connection with the Subsequent GulfTex Acquisition, is as follows:
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Derivative Instruments and Hedging Activities (Predecessor) |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
| Derivative Instruments and Hedging Activities (Predecessor) | Derivative Instruments and Hedging Activities (Predecessor) The Company’s activities expose it to risks associated with changes in the market price of oil, natural gas, and NGLs. As such, future earnings are subject to fluctuation due to changes in the market price of oil, natural gas, and NGLs. The Company has not engaged in any hedging activities and does not expect to engage in any hedging activities with respect to the market risk to which the Company is exposed. The Karnes County Contributors, on behalf of the Predecessor, used derivatives to reduce the risk of volatility in the prices of oil, natural gas, and NGLs and their policies did not permit the use of derivatives for speculative purposes. |
Fair Value Measurements |
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Jun. 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurements | Fair Value Measurements Certain of the Company’s assets and liabilities are carried at fair value and measured either on a recurring or non-recurring 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 ASC 820. The three levels of the fair value hierarchy under ASC 820 are as follows: Level I - Quoted prices (unadjusted) in active markets for identical investments at the measurement date are used. Level II - Pricing inputs are other than quoted prices included within Level I that are observable for the investment, either directly or indirectly. Level II 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 III - 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. Fair Values - Recurring (Predecessor) The Predecessor’s derivatives consisted of over-the-counter contracts that were not traded on a public exchange. As the fair value of these derivatives was based on inputs using market prices obtained from independent brokers or determined using quantitative models that used as their basis readily observable market parameters that are actively quoted and can be validated through external sources, including third-party pricing services, brokers and market transactions, the Predecessor categorized these derivatives as Level 2. The Predecessor valued these derivatives using the income approach using inputs such as the forward curve for commodity prices based on quoted market prices and prospective volatility factors related to changes in the forward curves. Estimates of fair value have been determined at discrete points in time based on relevant market data. Furthermore, fair values are adjusted to reflect the credit risk inherent in the transaction, which may have included amounts to reflect counterparty credit quality and/or the effect of the Predecessor’s creditworthiness. Fair Values - Nonrecurring The fair value measurements of assets acquired and liabilities assumed in a business combination are measured on a nonrecurring basis on the acquisition date using an income valuation technique based on inputs that are not observable in the market, and therefore, represent Level 3 inputs. Significant inputs to the valuation of acquired oil and gas properties includes estimates of: (i) reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices, including price differentials; (v) future cash flows; and (vi) a market participant-based weighted average cost of capital rate. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation. Refer to Note 3 - Acquisitions for additional information. Debt Obligations Carrying values and fair values of financial instruments that are not carried at fair value in the accompanying consolidated balance sheet as of June 30, 2019 is as follows:
The fair value of the 2026 Senior Notes at June 30, 2019 was based on unadjusted quoted prices in an active market, which are 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 instrument and their relatively short maturities. Non-financial assets and liabilities initially measured at fair value include assets acquired and liabilities assumed in the business combinations and asset retirement obligations.
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Intangible Assets |
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| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||
| Intangible Assets | Intangible Assets Non-Compete Agreement On the Closing Date, the Company and EnerVest, separate and apart from the Business Combination, entered into the Non-Compete, which prohibits EnerVest and certain of its affiliates from competing with the Company in the Eagle Ford Shale (the “Market Area”) until the later of July 31, 2022 or the date the Services Agreement is terminated. Under the Non-Compete, an affiliate of EnerVest will have the right to receive 4.0 million shares of Class A Common Stock in two tranches of 2.0 million shares in two and one half and four years from the Closing Date provided EnerVest does not compete in the Market Area. The Company recorded an estimated cost of $44.4 million for the Non-Compete as intangible assets on the Company’s consolidated balance sheet. These intangible assets have a definite life and are subject to amortization utilizing the straight-line method over their economic life, currently estimated to be two and one half to four years. The Company includes the amortization in “Amortization of intangible assets” on the Company’s consolidated statement of operations.
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Income Taxes |
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| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes | Income Taxes The Company estimates its annual effective tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which Magnolia and its subsidiaries operate. The tax effects of statutory rate changes, significant unusual or infrequent items, and certain changes in the assessment of the realizability of deferred tax assets are excluded from the determination of the Company’s annual effective tax rate as such items are recognized as discrete items in the period in which they occur. Income tax expense recorded for the period is based on applying an estimated annual effective income tax rate to the net income from January 1, 2019 through June 30, 2019. There were no significant unusual or infrequently occurring items that are required to be recorded as discrete items as of June 30, 2019. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the Company’s expected operating income for the year, projections of the proportion of income earned and taxed in various jurisdictions, the effect of noncontrolling interest, permanent and temporary differences, and the likelihood of recovering deferred tax assets in the current year. The accounting estimates used to compute the income tax expense may change as new events occur, more experience is obtained, additional information becomes known, or as the tax environment changes. For the three and six months ended June 30, 2019, the Company incurred U.S. federal income tax expense of approximately $4.9 million and $8.5 million, respectively. The Company’s annual effective tax rate for the three and six months ended June 30, 2019 was 14.1% and 14.2%, respectively. The primary differences between the annual effective tax rate and the statutory rate of 21.0% are income attributable to noncontrolling interest and state taxes. The Company’s income tax provision (benefit) consists of the following components:
The Company is subject to U.S. federal income tax, the margin tax in the state of Texas, and Louisiana corporate income tax. No amounts have been accrued for income tax uncertainties or interest and penalties as of June 30, 2019. The Company is currently not aware of any issues under review that could result in significant payments, accruals, or 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 for all periods.
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Long-Term Debt (Successor) |
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Jun. 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Long-Term Debt (Successor) | Long Term Debt (Successor) The Company’s debt is comprised of the following:
Credit Facility In connection with the consummation of the Business Combination, Magnolia Operating entered into a senior secured reserve-based revolving credit facility (the “RBL Facility”) 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, providing for maximum commitments in an aggregate principal amount of $1.0 billion with a letter of credit facility with a $100.0 million sublimit. The borrowing base as of June 30, 2019 was $550.0 million. The RBL Facility 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 and has a borrowing base subject to semi-annual redetermination. Borrowings under the RBL Facility bear interest, at Magnolia Operating’s option, at a rate per annum equal to either the LIBOR 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 RBL Facility. The applicable margin and the commitment fee rate are calculated based upon the utilization levels of the RBL Facility as a percentage of the borrowing base then in effect. The RBL Facility contains certain affirmative and negative covenants customary for financings of this type, including compliance with a leverage ratio of less than 4.00 to 1.00 and, if the leverage ratio is in excess of 3.00 to 1.00, a current ratio of greater than 1.00 to 1.00. As of June 30, 2019, the Company was in compliance with all covenants (including the financial covenants) under the RBL Facility. Deferred financing costs incurred in connection with securing the RBL Facility were $11.7 million, which are amortized on a straight-line basis over a period of five years and included in “Interest expense, net” in the Company’s consolidated statement of operations. During the three and six months ended June 30, 2019, the Company recognized interest expense of $1.1 million and $2.2 million, respectively, related to the RBL Facility. The unamortized portion of the deferred financing costs are included in “Deferred financing costs, net” on the accompanying unaudited consolidated balance sheet as of June 30, 2019. The Company did not have any outstanding borrowings under its RBL Facility as of June 30, 2019. 2026 Senior Notes On the Closing Date, the Issuers issued and sold $400.0 million aggregate principal amount of 2026 Senior Notes. The 2026 Senior Notes were issued under the Indenture, dated as of the Closing Date (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. The 2026 Senior Notes bear interest at the rate of 6.0% per annum, payable semi-annually in arrears on each February 1st and August 1st. At any time prior to August 1, 2021, the Issuers may, on any one or more occasions, redeem all or a part of the 2026 Senior Notes at a redemption price equal to 100% of the principal amount of the 2026 Senior Notes redeemed, plus a “make whole” premium on accrued and unpaid interest, if any, to, but excluding, the date of redemption. After August 1, 2021, the Issuers may redeem all or a part of the Notes based on principal plus a set premium, as set forth in the Indenture, including any accrued and unpaid interest. The Company incurred $11.8 million of deferred financing costs related to the issuance of the 2026 Senior Notes, which were capitalized, and 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 statement 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 have been recorded as Long-term debt, net on the consolidated balance sheet as of June 30, 2019. During the three and six months ended June 30, 2019, the Company recognized interest expense of $6.3 million and $12.6 million, respectively, related to the 2026 Senior Notes. Affiliate Guarantors Certain subsidiaries of the Company are guarantors under the terms of its Senior Notes and RBL Facility. The parent guarantees may be released upon the request of Magnolia Operating. Magnolia’s consolidated financial statements reflect the financial position of these subsidiary guarantors. As the parent company, Magnolia has no independent operations, assets, or liabilities. The guarantees are full and unconditional (except for customary release provisions) and joint and several. There are restrictions on dividends, distributions, loans, or other transfers of funds from the subsidiary guarantors to the Company.
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Leases |
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| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | Leases Magnolia’s leases primarily consist of real estate, vehicles, and field equipment. The Company’s leases have remaining lease terms of up to 9 years, some of which include options to renew or terminate the lease. The exercise of lease renewal options is at the Company’s sole discretion. Magnolia’s lease agreements do not contain any residual value guarantees or restrictive covenants. As most of Magnolia’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company used the incremental borrowing rate on January 1, 2019, for operating leases that commenced prior to that date.
For the three and six months ended June 30, 2019, respectively, the Company incurred $0.6 million and $1.1 million of lease costs for operating leases included on the Company’s balance sheet, $6.2 million and $15.3 million for short-term lease costs and $0.6 million and $1.9 million for variable lease costs. Cash paid for amounts included in the measurement of lease liabilities in operating cash flows from operating leases for the six months ended June 30, 2019 is $1.1 million. Maturities of lease liabilities as of June 30, 2019 under the scope of ASC 842 are as follows:
(1) As of December 31, 2018, minimum future contractual payments for long-term operating leases under the scope of ASC 840 were $881 thousand in 2019, $646 thousand in 2020, $198 thousand in 2021, $14 thousand in 2022, $15 thousand in 2023 and $63 thousand thereafter.
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Stockholders' Equity |
6 Months Ended |
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Jun. 30, 2019 | |
| Equity [Abstract] | |
| Stockholders' Equity | Stockholders’ Equity Class A Common Stock In connection with the closing of the Business Combination, the Company increased the number of authorized shares of Class A Common Stock to 1.3 billion. At June 30, 2019, there were 158.9 million shares of Class A Common Stock issued and 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 shares being able to elect all of the directors, subject to voting obligations under the Stockholder Agreement (defined below). In the event of a liquidation, dissolution, or winding up of the Company, the common stockholders 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 In connection with the closing of the Business Combination, the Company authorized 225.0 million shares of Class B Common Stock. At June 30, 2019, there were 91.8 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 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 the Company, the common stockholders 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 B Common Stock have no preemptive or other subscription rights, and there are no sinking fund provisions applicable to such shares. Warrants As of June 30, 2019, the Company had 31.7 million warrants outstanding, consisting of 21.7 million public warrants originally sold as part of the units sold in the Company’s initial public offering (the “IPO”) and 10.0 million warrants (the “Private Placement Warrants”) sold in a private placement concurrently with the IPO to TPG Pace Energy Sponsor LLC, a Delaware limited liability company (the “Sponsor”). In connection with the closing of the exchange offer (the “Offer”) on July 10, 2019 and the subsequent exercise of the Company’s right to exchange all remaining warrants on July 25, 2019, the Company issued an aggregate of 9.2 million shares of Class A Common Stock in exchange for all of its warrants. See Note 15 - Subsequent Events for more information. Noncontrolling Interest Noncontrolling interest in Magnolia’s consolidated subsidiaries include amounts attributable to Magnolia LLC Units that were issued to the Karnes County Contributors in connection with the Business Combination. The noncontrolling interest percentage is affected by various equity transactions such as issuances of Class A Common Stock and the conversion of Class B Common Stock to Class A Common Stock. As of June 30, 2019, Magnolia owned approximately 63.4% of the interest in Magnolia LLC and the noncontrolling interest was 36.6%. In the first quarter of 2019, Magnolia Operating formed a joint venture, in which MGY Louisiana LLC, a wholly owned subsidiary of Magnolia Operating, holds approximately 85% of the units, with the remaining 15% attributable to noncontrolling interest.
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Stock Based Compensation |
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| Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Based Compensation | Stock Based Compensation On October 8, 2018, the Company’s board of directors adopted the “Magnolia Oil & Gas Corporation Long Term Incentive Plan” (the “Plan”), effective as of July 17, 2018. A total of 11.8 million shares of Class A Common Stock have been authorized for issuance under the Plan. The Company granted employees stock based compensation awards in the form of restricted stock units (“RSUs”) and performance stock units (“PSUs”) 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 within general and administrative expense on the consolidated statement of operations. The Company has elected to account for forfeitures of awards granted under the Plan as they occur in determining compensation expense. Restricted Stock Units The Company grants service-based RSU awards to employees and non-employee directors, which generally vest ratably over a three-year service period. RSUs represent the right to receive shares of Class A Common Stock at the end of the vesting period equal to the number of RSUs granted. RSUs are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient is no longer an employee or director of the Company for any reason prior to vesting of the award. Compensation expense for the service-based RSU awards is based upon the grant date market value of the award and such costs are recorded on a straight-line basis over the requisite service period, the vesting period, for each separately vesting portion of the award, as if the award was, in-substance, multiple awards. Unrecognized compensation expense related to unvested restricted shares at June 30, 2019 was $13.4 million, which the Company expected to recognize over a weighted average period of 1.3 years. The table below summarizes restricted stock unit activity for the six months ended June 30, 2019.
Performance Stock Units During the six months ended June 30, 2019, the Company granted PSUs to certain employees, with each PSU representing the contingent right to receive one share of Class A Common Stock. The number of shares of Class A Common Stock issuable upon vesting, however, ranges from zero to 150% of the number of PSUs granted based on the total shareholder return (“TSR”) of the Class A Common Stock relative to the TSR achieved by a specific industry peer group over an approximate three-year performance period, the last day of which is also the vesting date. Unrecognized compensation expense related to unvested PSUs at June 30, 2019 was $7.8 million, which the Company expected to recognize over a weighted average period of 2.0 years. The table below summarizes performance stock award and unit activity for the six months ended June 30, 2019.
The grant date fair value of the PSUs granted during the six months ended June 30, 2019 was $3.7 million, calculated using a Monte Carlo simulation. The following table summarizes the assumptions used to calculate the grant date fair value of these PSUs.
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Earnings Per Share |
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| Earnings Per Share | Earnings Per Share A reconciliation of the numerators and denominators of the basic and diluted per share computations follows. No such computation is necessary for the Predecessor periods as the Predecessor was not previously accounted for as a standalone legal entity and did not have publicly traded securities.
The calculation for weighted average shares reflects shares outstanding over the reporting period based on the actual number of days the shares were outstanding. The Company excluded 91.8 million and 92.5 million of weighted average shares of Class A Common Stock issuable upon conversion of the Class B Common Stock (and the corresponding Magnolia LLC Units) for the three and six months ended June 30, 2019, respectively, as the effect was anti-dilutive.
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Related Party Transactions |
6 Months Ended |
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Jun. 30, 2019 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions | Related Party Transactions As of June 30, 2019, EnerVest Energy Institutional Fund XIV-A, L.P., a Delaware limited partnership, and EnerVest Energy Institutional Fund XIV-C, L.P., a Delaware limited partnership, both of which are part of the Karnes County Contributors, each held more than 10% of the Company’s common stock and qualified as principal owners of the Company, as defined in ASC 850, “Related Party Disclosures.” Amended and Restated Limited Liability Company Agreement of Magnolia LLC On the Closing Date, the Company, Magnolia LLC, and certain of the Karnes County Contributors entered into Magnolia LLC’s amended and restated limited liability company agreement, which sets forth, among other things, the rights and obligations of the holders of units in Magnolia LLC. Under the Magnolia LLC Agreement, the Company is the sole managing member of Magnolia LLC. Registration Rights Agreement At the closing of the Business Combination, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Karnes County Contributors, the Sponsor, and the Company’s four independent directors prior to the Business Combination (collectively, the “Holders”), pursuant to which the Company is obligated, subject to the terms thereof and in the manner contemplated thereby, to register for resale under the Securities Act all or any portion of the shares of Class A Common Stock that the Holders held as of July 31, 2018 and that they may have acquired or might acquire thereafter, including upon conversion, exchange, or redemption of any other security therefor. Under the Registration Rights Agreement, Holders also have “piggyback” registration rights exercisable at any time that allow them to include the shares of Class A Common Stock that they own in certain registrations initiated by the Company. Pursuant to the Registration Rights Agreement, the Company has filed and taken effective two registration statements on Form S-3, each of which registered, among others, the offering by the Holders of the shares of Class A Common Stock included therein. The second registration statement was filed on July 10, 2019 and became effective July 26, 2019. Stockholder Agreement On the Closing Date, the Company, the Sponsor, and the Karnes County Contributors entered into the Stockholder Agreement (the “Stockholder Agreement”), under which the Karnes County Contributors are entitled to nominate two directors, one of whom shall be independent under the listing rules of the New York Stock Exchange, the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002, for appointment to the board of directors of the Company (the “Board”) so long as they collectively own at least 15% of the outstanding shares of Class A Common Stock and Class B Common Stock, (on a fully diluted basis, including equity securities exercisable into common stock, and on a combined basis), and one director so long as they owned at least 2% of the outstanding shares of Class A Common Stock and Class B Common Stock (on a fully diluted basis, including equity securities exercisable into common stock, and on a combined basis). The Sponsor is entitled to nominate two directors for appointment to the Board so long as it owns at least 60% of the voting common stock that it owned at the Closing Date (including any shares of common stock issuable upon the exercise of any Private Placement Warrants held by the Sponsor), and one director so long as it owns at least 25% of the voting common stock that it owned at the Closing Date (including any shares of common stock issuable upon the exercise of any Private Placement Warrants held by the Sponsor). The Karnes County Contributors and the Sponsor are each entitled to appoint one director to each committee of the Board (subject to applicable laws and stock exchange rules). Contingent Consideration Pursuant to the Karnes County Contribution Agreement, for a period of five years following the Closing Date, the Company agreed to issue to the Karnes County Contributors up to 13.0 million additional shares of the Company’s stock upon satisfaction of certain EBITDA and free cash flow or stock price thresholds in three tranches. As of December 31, 2018, the Company had met the defined stock price thresholds and had issued an aggregate of 3.6 million additional shares of Class A Common Stock and 9.4 million additional shares of Class B Common Stock to the Karnes County Contributors. Tender and Support Agreement Pursuant to the Offer, certain of the Company’s warrantholders, including directors and executive officers, agreed to tender their warrants by entering into the tender and support agreement, dated as of June 7, 2019, by and between the Company and such holders (the “Tender and Support Agreement”). See Note 15 - Subsequent Events for more information. Predecessor Transactions EnerVest, as managing general partner of the Karnes County Contributors, provided management, accounting and advisory services to the Karnes County Contributors in exchange for a quarterly management fee based on the Karnes County Contributors' investor commitments. The management fees incurred were allocated to the Predecessor using a ratio of asset acquisitions value to total asset acquisitions completed by the Karnes County Contributors. The management fees and other costs allocated to the Predecessor and included in "General and administrative expenses" in the combined statements of operations were $4.1 million and $9.9 million for the three and six months ended June 30, 2018, respectively. |
Commitments and Contingencies |
6 Months Ended |
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Jun. 30, 2019 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | Commitments and Contingencies Legal Matters The Company is involved in disputes or legal actions in the ordinary course of business. For example, certain of the Karnes County Contributors 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 Business properties. The litigation is in the discovery stage. The exposure related to this litigation is currently not reasonably estimable. The Karnes County Contributors retained all such liability in connection with the Business Combination. At June 30, 2019, the Company does not believe the outcome of any such disputes or legal actions will have a material effect on its consolidated statement of operations, balance sheet, or cash flows. Environmental Matters The Company, as an owner or lessee and operator of oil and gas properties, is subject to various federal, state, local laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the lessee under an oil and 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 the 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 |
Subsequent Events |
6 Months Ended |
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Jun. 30, 2019 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | Subsequent Events On June 7, 2019, the Company commenced the Offer and consent solicitation (the “Consent Solicitation”), pursuant to which the Company (1) offered to holders of its warrants the opportunity to receive 0.29 shares of Class A Common Stock in exchange for each warrant validly tendered and (2) solicited the consent from each warrant holder to approve an amendment to the existing warrant agreement that would amend such agreement to provide the Company with the right to require any holder of the Company’s warrants to exchange their warrants for Class A Common Stock at an exchange ratio of 0.261 shares of Class A Common Stock for each warrant (the “Warrant Amendment”). Pursuant to the Offer, certain of the Company’s warrantholders, including directors and executive officers, agreed to tender their warrants and provide the corresponding consent to the Warrants Amendment in the Consent Solicitation by entering into the Tender and Support agreement. The Offer and Consent Solicitation expired on July 5, 2019. In connection with the closing of the Offer on July 10, 2019 and the subsequent exercise of the Company’s right to exchange all remaining warrants on July 25, 2019, the Company issued an aggregate of 9.2 million shares of Class A Common Stock in exchange for all of its warrants. The difference in fair value between the Class A Common Stock issued and the warrants exchanged is expected to be recorded in the third quarter of 2019 as a non-cash deemed dividend for the incremental value provided to the holders of the warrants in an amount expected to be less than $3.0 million. On August 6, 2019, the Company announced that its Board of Directors authorized a share repurchase program of up to 10 million shares. The program does not require purchases to be made within a particular timeframe.
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Summary of Significant Accounting Policies (Policies) |
6 Months Ended |
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Jun. 30, 2019 | |
| Accounting Policies [Abstract] | |
| Basis of Presentation | Basis of Presentation In accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company is the acquirer in the Business Combination for accounting purposes and the Karnes County Business, the Giddings Assets, and the Ironwood Interests are the acquirees. The Karnes County Business including, as applicable, its ownership of the Ironwood Interests, was deemed the “Predecessor” for periods prior to the Business Combination, and does not include the consolidation of the Company and the Giddings Assets. Although the Karnes County Contributors are not under common control, each are managed by the same managing general partner, EnerVest, and as such, these Predecessor financial statements have been presented on a combined basis for financial reporting purposes. For the period on or after the Business Combination, the Company, including the combination of the Karnes County Business, the Giddings Assets, and the Ironwood Interests, is the “Successor.” The financial statements and certain footnote presentations separate the Company’s presentations into two distinct periods, the period before the consummation of the Business Combination, which includes the three and six months ended June 30, 2018 (the “Predecessor Period”) and the period after the Business Combination (the “Successor Period”), which includes the three and six months ended June 30, 2019. The Business Combination was accounted for using the acquisition method of accounting and the Successor financial statements reflect a new basis of accounting that is based on the fair value of assets acquired and liabilities assumed. As a result of the inclusion of the Giddings Assets, the new basis of accounting, and certain other items that affect comparability, the Company’s financial information prior to the Business Combination is not comparable to its financial information subsequent to the Business Combination. The assets, liabilities, revenues, expenses, and cash flows related to the Karnes County Business were not previously separately accounted for as a standalone legal entity and have been carved out of the overall assets, liabilities, revenues, expenses and cash flows from the Karnes County Contributors as appropriate. In addition, Parents’ Net Investment represents the Karnes County Contributors’ interest in the recorded net assets of the Karnes County Business and represents the cumulative net investment of the Karnes County Contributors’ in the Karnes County Business through the dates presented, inclusive of cumulative operating results. The Karnes County Contributors utilize EnerVest’s centralized processes and systems for its treasury services and the Karnes County Business’ cash activity was commingled with other oil and gas assets that were not part of the Business Combination. As such, the net results of the cash transactions between the Karnes County Business and the Karnes County Contributors are reflected as Parents’ Net Investment in the accompanying Predecessor balance sheet. The Predecessor financial statements also include a portion of indirect costs for salaries and benefits, rent, accounting, legal services, and other expenses. In addition to the allocation of indirect costs, the financial statements reflect certain agreements executed by the Karnes County Contributors for the benefit of the Karnes County Business, including price risk management instruments. The allocations methodologies for significant allocated items include: Corporate G&A - EnerVest, as managing general partner of the Karnes County Contributors, provided management, accounting, and advisory services to the Karnes County Contributors in exchange for a quarterly management fee based on the Karnes County Contributors’ investor commitments, which were used, in part, to acquire the Karnes County Business as well as other oil and natural properties that were not part of the Business Combination. As such, the management fee was allocated to the Karnes County Business using a ratio of asset acquisitions value to total asset acquisitions completed by the Karnes County Contributors, for the Predecessor Period. Derivatives - Certain Karnes County Contributors entered into financial instruments to manage the Karnes County Business’ exposure to changes in commodity prices for the Karnes County Business as well as other oil and natural gas properties that were not part of the Business Combination, on a combined basis. The commodity derivative activity was allocated to the Karnes County Business using a ratio of expected crude oil and condensate, natural gas liquids (“NGLs”), and natural gas volumes produced, on an equivalents basis, by the Karnes County Business to the Karnes County Contributors’ total expected crude oil and condensate, NGLs, and natural gas produced, on an equivalents basis, for the Predecessor Period. Indebtedness - The Karnes County Business did not historically have outstanding indebtedness, but its oil and natural gas properties were collateral to various credit facilities held by the Karnes County Contributors/EnerVest. Amounts outstanding on these credit facilities have not been allocated to the Karnes County Business as they were not directly attributable to the Karnes County Business. Management believes the allocation methodologies used are reasonable and result in an allocation of the indirect costs and other items to operate the Karnes County Business as if it were a stand-alone entity. These allocations, however, may not be indicative of the cost of future operations or the amount of future allocations. Direct costs were included at the historical amounts related to each reported period. The accompanying unaudited interim consolidated and combined financial statements have been prepared in accordance with GAAP and in accordance with the rules and regulations of the SEC. Accordingly, certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for the full year or any future periods. The unaudited interim consolidated financial statements, including the Predecessor financial statements, should be read in conjunction with the information included in or incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
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| Leases | Leases In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-02, Leases, which requires lessees to recognize a right of use asset and a lease liability on their balance sheet for all leases, including operating leases, with a term of greater than 12 months. In July 2018, the FASB issued ASU 2018-11, which adds a transition option permitting entities to apply the provisions of the new standard at its adoption date instead of the earliest comparative period presented in the consolidated financial statements. Under this transition option, comparative reporting would not be required, and the provisions of the standard would be applied prospectively to leases in effect at the date of adoption. The Company elected the package of transition practical expedients provided by the new standard that allow the Company to not reassess under the new standard its prior conclusions about lease identification, classification related to contracts that commenced prior to adoption, and to apply the standard prospectively to all new or modified land easements and rights-of-way. The Company has also elected a policy to not recognize right of use assets and lease liabilities related to short-term leases. The Company has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. |
| Recent Accounting Pronouncements | Recent Accounting Pronouncements In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). The amendments in the update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The Company early adopted ASU 2018-15 effective April 1, 2019, with prospective application. The adoption did not have a material impact on the Company’s consolidated financial statements.
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Acquisitions (Tables) |
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| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Purchase Consideration for Business Combination | The purchase consideration for the Business Combination was as follows:
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| Summary of Allocation of Purchase Consideration to Assets Acquired and Liabilities Assumed | The following table summarizes the allocation of the purchase consideration to the assets acquired and liabilities assumed:
(1) The fair value measurements of oil and natural gas properties and asset retirement obligations are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair values of oil and natural gas properties and asset retirement obligations were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation of oil and natural gas properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital rate. These inputs required significant judgments and estimates by management at the time of the valuation. The recognized fair value of identifiable assets and acquired liabilities assumed in connection with the Subsequent GulfTex Acquisition, is as follows:
The following table summarizes the allocation of the purchase consideration to the assets acquired and liabilities assumed on the acquisition date:
(1) The fair value measurements of oil and natural gas properties and asset retirement obligations are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair values of oil and natural gas properties and asset retirement obligations were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation of oil and natural gas properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital rate.
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Fair Value Measurements (Tables) |
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| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Carrying Values and Fair Values of Financial Instruments Not Carried at Fair Value | Carrying values and fair values of financial instruments that are not carried at fair value in the accompanying consolidated balance sheet as of June 30, 2019 is as follows:
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Intangible Assets (Tables) |
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Jun. 30, 2019 | |||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||
| Schedule of Intangible Assets |
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Income Taxes (Tables) |
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| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Components of Income Tax Provision (Benefit) | The Company’s income tax provision (benefit) consists of the following components:
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Long-Term Debt (Successor) (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Components of Debt | The Company’s debt is comprised of the following:
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Leases (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Lease Assets and Liabilities and Supplemental Information |
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| Schedule of Maturity of Lease Liabilities | Maturities of lease liabilities as of June 30, 2019 under the scope of ASC 842 are as follows:
(1) As of December 31, 2018, minimum future contractual payments for long-term operating leases under the scope of ASC 840 were $881 thousand in 2019, $646 thousand in 2020, $198 thousand in 2021, $14 thousand in 2022, $15 thousand in 2023 and $63 thousand thereafter.
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Stock Based Compensation (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Restricted Stock Unit Activity | The table below summarizes restricted stock unit activity for the six months ended June 30, 2019.
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| Schedule of Performance Stock Award and Unit Activity | The table below summarizes performance stock award and unit activity for the six months ended June 30, 2019.
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| Schedule of Assumptions Used to Calculate Grant Date Fair Value of PSUs | The following table summarizes the assumptions used to calculate the grant date fair value of these PSUs.
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Earnings Per Share (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reconciliation of Numerators and Denominators for Basic and Diluted Per Share Computation | A reconciliation of the numerators and denominators of the basic and diluted per share computations follows. No such computation is necessary for the Predecessor periods as the Predecessor was not previously accounted for as a standalone legal entity and did not have publicly traded securities.
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Derivative Instruments and Hedging Activities (Predecessor) - Narrative (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
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| Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||
| Loss on derivatives | $ 0 | $ 14,800 | $ 0 | $ 21,992 |
Fair Value Measurements - Financial Instruments Not Carried at Fair Value (Details) - Level 1 $ in Thousands |
Jun. 30, 2019
USD ($)
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|---|---|
| Carrying Value | |
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
| Long-term debt | $ 389,225 |
| Fair Value | |
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
| Long-term debt | $ 410,000 |
Intangible Assets - Schedule of Intangible Asset (Details) - USD ($) $ in Thousands |
6 Months Ended | |
|---|---|---|
Jun. 30, 2019 |
Dec. 31, 2018 |
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| Finite-Lived Intangible Assets [Line Items] | ||
| Accumulated amortization | $ (13,296) | |
| Intangible assets, net | $ 31,104 | $ 38,356 |
| Weighted average amortization period (in years) | 3 years 3 months | |
| Non-Compete Agreement | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Non-compete intangible assets | $ 44,400 |
Income Taxes - Narrative (Details) |
3 Months Ended | 6 Months Ended |
|---|---|---|
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Jun. 30, 2019
USD ($)
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Jun. 30, 2019
USD ($)
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| Income Tax Disclosure [Abstract] | ||
| United States federal income tax expense | $ 4,900,000 | $ 8,500,000 |
| Annual effective tax rate | 14.10% | 14.20% |
| Amount accrued for income tax uncertainties | $ 0 | $ 0 |
| Amount accrued for income tax interest and penalties | $ 0 | $ 0 |
Income Taxes - Components of Income Tax Provision (Benefit) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
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| Current: | ||||
| Federal | $ (176) | $ 0 | $ 0 | $ 0 |
| State | 386 | 264 | 569 | 828 |
| Current income tax provision (benefit) | 210 | 264 | 569 | 828 |
| Deferred: | ||||
| Federal | 5,092 | 0 | 8,454 | 0 |
| State | (157) | 309 | (103) | 191 |
| Deferred income tax provision (benefit) | 4,935 | 309 | 8,351 | 191 |
| Total provision | $ 5,145 | $ 573 | $ 8,920 | $ 1,019 |
Long-Term Debt (Successor) - Components of Debt (Details) - USD ($) |
Jun. 30, 2019 |
Jul. 31, 2018 |
|---|---|---|
| Debt Instrument [Line Items] | ||
| Total long-term debt | $ 400,000,000 | |
| Less: unamortized deferred financing cost | (10,775,000) | |
| Total debt, net | 389,225,000 | |
| Line of Credit | Revolving credit facility | ||
| Debt Instrument [Line Items] | ||
| Total long-term debt | 0 | |
| Senior Notes | 6.0% Senior Notes due 2026 | ||
| Debt Instrument [Line Items] | ||
| Total long-term debt | $ 400,000,000 | |
| Stated interest rate | 6.00% | 6.00% |
Long-Term Debt (Successor) - 2026 Senior Notes Narrative (Details) - Senior Notes - 6.0% Senior Notes due 2026 - USD ($) |
3 Months Ended | 6 Months Ended | |
|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2019 |
Jul. 31, 2018 |
|
| Debt Instrument [Line Items] | |||
| Aggregate principal amount | $ 400,000,000.0 | ||
| Stated interest rate | 6.00% | 6.00% | 6.00% |
| Redemption price, percentage of principal amount of Notes redeemed | 100.00% | ||
| Deferred financing costs incurred in connection with securing the 2026 Senior Notes | $ 11,800,000 | $ 11,800,000 | |
| Interest expense | $ 6,300,000 | $ 12,600,000 |
Leases - Narrative (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended |
|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2019 |
|
| Leases [Abstract] | ||
| Remaining lease term (up to) | 9 years | |
| Operating lease costs | $ 0.6 | $ 1.1 |
| Short-term lease costs | 6.2 | 15.3 |
| Variable lease costs | $ 0.6 | $ 1.9 |
Leases - Lease Assets and Liabilities and Supplemental Information (Details) $ in Thousands |
Jun. 30, 2019
USD ($)
|
|---|---|
| Operating Leases | |
| Operating lease assets | $ 5,305 |
| Operating lease liabilities - current | 2,884 |
| Operating lease liabilities - long-term | 2,423 |
| Total operating lease liabilities | $ 5,307 |
| Weighted Average Remaining Lease Term (in years) | 2 years 1 month 6 days |
| Weighted Average Discount Rate | 3.80% |
Leases - Maturity of Lease Liabilities (Details) - USD ($) $ in Thousands |
Jun. 30, 2019 |
Dec. 31, 2018 |
|---|---|---|
| Operating Leases | ||
| 2019 (remaining) | $ 1,647 | |
| 2020 | 2,533 | |
| 2021 | 1,049 | |
| 2022 | 105 | |
| 2023 | 98 | |
| After 2023 | 91 | |
| Total lease payments | 5,523 | |
| Less: interest | (216) | |
| Present value of lease liabilities | $ 5,307 | |
| Minimum Future Contractual Payments for Long-term Operating Leases, ASC 840 | ||
| 2019 | $ 881 | |
| 2020 | 646 | |
| 2021 | 198 | |
| 2022 | 14 | |
| 2023 | 15 | |
| Thereafter | $ 63 |
Stock Based Compensation - Schedule of Assumptions Used to Calculate Grant Date Fair Value of PSUs (Details) - PSUs |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Expected volatility, minimum | 31.58% |
| Expected volatility, maximum | 33.61% |
| Risk-free interest rate, minimum | 2.29% |
| Risk-free interest rate, maximum | 2.48% |
| Minimum | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Expected term (in years) | 2 years 8 months 2 days |
| Maximum | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Expected term (in years) | 2 years 10 months 6 days |
Subsequent Events (Details) - USD ($) |
1 Months Ended | 3 Months Ended | ||
|---|---|---|---|---|
Jul. 25, 2019 |
Sep. 30, 2019 |
Aug. 06, 2019 |
Jun. 07, 2019 |
|
| Forecast | Maximum | ||||
| Subsequent Event [Line Items] | ||||
| Non-cash deemed dividend | $ 3,000,000.0 | |||
| Subsequent Event | ||||
| Subsequent Event [Line Items] | ||||
| Authorized share repurchase program (in shares) | $ 10,000,000 | |||
| Class A Common Stock | ||||
| Subsequent Event [Line Items] | ||||
| Common stock issued in exchange for Warrants tendered in the Offer (in shares) | 0.29 | |||
| Class A Common Stock | Subsequent Event | ||||
| Subsequent Event [Line Items] | ||||
| Common stock issued in exchange for Warrants tendered in the Offer (in shares) | 9,200,000 | |||
| Warrant Amendment | Class A Common Stock | Subsequent Event | ||||
| Subsequent Event [Line Items] | ||||
| Common stock issued in exchange for Warrants tendered in the Offer (in shares) | 0.261 |