0001698990-21-000049.txt : 20211102 0001698990-21-000049.hdr.sgml : 20211102 20211102160633 ACCESSION NUMBER: 0001698990-21-000049 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 69 CONFORMED PERIOD OF REPORT: 20210930 FILED AS OF DATE: 20211102 DATE AS OF CHANGE: 20211102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Magnolia Oil & Gas Corp CENTRAL INDEX KEY: 0001698990 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 815365682 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38083 FILM NUMBER: 211371260 BUSINESS ADDRESS: STREET 1: NINE GREENWAY PLAZA STREET 2: SUITE 1300 CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: 713-842-9050 MAIL ADDRESS: STREET 1: NINE GREENWAY PLAZA STREET 2: SUITE 1300 CITY: HOUSTON STATE: TX ZIP: 77046 FORMER COMPANY: FORMER CONFORMED NAME: Magnolia Oil & Gas DATE OF NAME CHANGE: 20180801 FORMER COMPANY: FORMER CONFORMED NAME: TPG Pace Energy Holdings Corp. DATE OF NAME CHANGE: 20170224 10-Q 1 mgy-20210930.htm 10-Q mgy-20210930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 001-38083
Magnolia Oil & Gas Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware81-5365682
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Nine Greenway Plaza, Suite 1300
77046
Houston,
Texas
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (713) 842-9050
Securities registered pursuant to section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.0001MGYNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of October 28, 2021, there were 181,801,600 shares of Class A Common Stock, $0.0001 par value per share, and 49,292,476 shares of Class B Common Stock, $0.0001 par value per share, outstanding.



GLOSSARY OF CERTAIN TERMS AND CONVENTIONS USED HEREIN

The following are definitions of certain other terms and conventions that are used in this Quarterly Report on Form 10-Q:

The “Company” or “Magnolia.” Magnolia Oil & Gas Corporation (either individually or together with its consolidated subsidiaries, as the context requires, including Magnolia Intermediate, Magnolia LLC, Magnolia Operating, and Magnolia Oil & Gas Finance Corp.).

“Magnolia Intermediate.” Magnolia Oil & Gas Intermediate LLC.

“Magnolia LLC.” Magnolia Oil & Gas Parent LLC.

“Magnolia LLC Units.” Units representing limited liability company interests in Magnolia LLC.

“Magnolia Operating.” Magnolia Oil & Gas Operating LLC.

“EnerVest.” EnerVest, Ltd.

“Business Combination.” The acquisition, which closed on July 31, 2018, of the Karnes County Assets; the Giddings Assets; and a 35% membership interest in Ironwood Eagle Ford Midstream, LLC.

“Class A Common Stock.” Magnolia’s Class A Common Stock, par value $0.0001 per share.

“Class B Common Stock.” Magnolia’s Class B Common Stock, par value $0.0001 per share.

“Giddings Assets.” Certain right, title, and interest in certain oil and natural gas assets located primarily in the Giddings area of the Austin Chalk formation.

“Issuers.” Magnolia Operating and Magnolia Oil & Gas Finance Corp., a wholly owned subsidiary of Magnolia Operating, as it relates to the 2026 Senior Notes.

“Karnes County Assets.” Certain right, title, and interest in certain oil and natural gas assets located primarily in the Karnes County portion of the Eagle Ford Shale formation in South Texas.

“Magnolia LLC Unit Holders.” EnerVest Energy Institutional Fund XIV-A, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIV-WIC, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIV-2A, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIV-3A, L.P., a Delaware limited partnership, and EnerVest Energy Institutional Fund XIV-C-AIV, L.P., a Delaware limited partnership.

“RBL Facility.” Senior secured reserve-based revolving credit facility.

“2026 Senior Notes.” 6.0% Senior Notes due 2026.

“Services Agreement.” That certain Services Agreement, as amended, dated as of July 31, 2018, by and between the Company, Magnolia Operating, and EnerVest Operating, L.L.C. (“EVOC”), pursuant to which EVOC provided certain services to the Company as described in the agreement.

“Stockholder Agreement.” The Stockholder Agreement, dated as of July 31, 2018, by and between the Company and the other parties thereto.

“Non-Compete.” That certain Non-Competition Agreement, dated July 31, 2018, between the Company and EnerVest, pursuant to which EnerVest and certain of its affiliates were restricted from competing with the Company in certain counties comprising the Eagle Ford Shale.



Table of Contents






PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Magnolia Oil & Gas Corporation
Consolidated Balance Sheets
(In thousands)
September 30, 2021December 31, 2020
ASSETS(Unaudited)(Audited)
CURRENT ASSETS
Cash and cash equivalents
$245,023 $192,561 
Accounts receivable
130,100 81,559 
Drilling advances
63 3,805 
Other current assets
1,567 3,601 
Total current assets376,753 281,526 
PROPERTY, PLANT AND EQUIPMENT
Oil and natural gas properties2,308,425 2,130,125 
Other6,799 4,412 
Accumulated depreciation, depletion and amortization(1,119,349)(985,010)
Total property, plant and equipment, net1,195,875 1,149,527 
OTHER ASSETS
Deferred financing costs, net4,291 6,042 
Intangible assets, net 9,346 
Other long-term assets8,860 6,979 
Total other assets13,151 22,367 
TOTAL ASSETS$1,585,779 $1,453,420 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable$107,460 $62,626 
Other current liabilities (Note 8)
83,225 66,323 
Total current liabilities190,685 128,949 
LONG-TERM LIABILITIES
Long-term debt, net387,537 391,115 
Asset retirement obligations, net of current96,062 88,232 
Other long-term liabilities5,978 5,702 
Total long-term liabilities489,577 485,049 
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS’ EQUITY
Class A Common Stock, $0.0001 par value, 1,300,000 shares authorized, 189,627 shares issued and 178,160 shares outstanding in 2021 and 168,755 shares issued and 163,280 shares outstanding in 2020
19 17 
Class B Common Stock, $0.0001 par value, 225,000 shares authorized, 52,916 shares issued and outstanding in 2021 and 85,790 shares issued and outstanding in 2020
5 9 
Additional paid-in capital1,665,805 1,712,544 
Treasury Stock, at cost, 11,468 shares and 5,475 shares in 2021 and 2020, respectively
(112,796)(38,958)
Accumulated deficit(858,397)(1,125,450)
Noncontrolling interest210,881 291,260 
      Total equity905,517 839,422 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$1,585,779 $1,453,420 

The accompanying notes are an integral part to these consolidated financial statements.
1


Magnolia Oil & Gas Corporation
Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
Three Months EndedNine Months Ended
September 30, 2021September 30, 2020September 30, 2021September 30, 2020
REVENUES
Oil revenues$195,132 $95,677 $529,641 $311,153 
Natural gas revenues42,828 14,895 110,187 44,238 
Natural gas liquids revenues45,619 10,495 102,140 29,880 
Total revenues283,579 121,067 741,968 385,271 
OPERATING EXPENSES
Lease operating expenses23,593 18,802 64,957 61,275 
Gathering, transportation and processing10,077 5,771 27,839 20,579 
Taxes other than income14,082 7,331 38,657 22,874 
Exploration expense317 701 2,440 563,589 
Impairment of oil and natural gas properties   1,381,258 
Asset retirement obligations accretion1,329 1,501 4,065 4,403 
Depreciation, depletion and amortization47,993 44,731 134,268 238,273 
Amortization of intangible assets 3,626 9,346 10,879 
General and administrative expenses14,695 16,663 59,816 50,472 
Total operating expenses112,086 99,126 341,388 2,353,602 
OPERATING INCOME (LOSS)171,493 21,941 400,580 (1,968,331)
OTHER INCOME (EXPENSE)
Income from equity method investee 1,007  2,059 
Interest expense, net(7,474)(7,333)(23,519)(21,345)
Loss on derivatives, net(623)(2,208)(3,110)(2,208)
Other income (expense), net142 (51)48 (510)
Total other expense, net(7,955)(8,585)(26,581)(22,004)
INCOME (LOSS) BEFORE INCOME TAXES163,538 13,356 373,999 (1,990,335)
Income tax expense (benefit)3,631 (339)6,428 (79,340)
NET INCOME (LOSS)159,907 13,695 367,571 (1,910,995)
LESS: Net income (loss) attributable to noncontrolling interest40,543 4,548 100,518 (674,860)
NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON STOCK$119,364 $9,147 $267,053 $(1,236,135)
NET INCOME (LOSS) PER SHARE OF CLASS A COMMON STOCK
Basic$0.68 $0.05 $1.54 $(7.41)
Diluted$0.67 $0.05 $1.53 $(7.41)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic174,764 166,467 172,281 166,728 
Diluted175,683 170,676 173,280 166,728 

The accompanying notes are an integral part of these consolidated financial statements.
2


Magnolia Oil & Gas Corporation
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(In thousands)
Class A
Common Stock
Class B
Common Stock
Additional Paid In CapitalTreasury StockRetained Earnings/ Accumulated DeficitTotal Stockholders’ EquityNoncontrolling InterestTotal
Equity
SharesValueSharesValueSharesValue
Balance, December 31, 2019168,319 $17 85,790 $9 $1,703,362 1,000 $(10,277)$82,940 $1,776,051 $952,478 $2,728,529 
Stock based compensation expense— — — — 1,902 — — — 1,902 977 2,879 
Changes in ownership interest adjustment— — — — (970)— — — (970)970  
Common stock issued related to stock based compensation, net 154 — — — (298)— — — (298)(154)(452)
Class A Common Stock repurchases— — — — — 1,000 (6,483)— (6,483)— (6,483)
Distributions to noncontrolling interest owners— — — — — — — — — (284)(284)
Net loss— — — — — — — (1,227,010)(1,227,010)(668,289)(1,895,299)
Balance, March 31, 2020168,473 $17 85,790 $9 $1,703,996 2,000 $(16,760)$(1,144,070)$543,192 $285,698 $828,890 
Stock based compensation expense— — — — 2,023 — — — 2,023 1,042 3,065 
Changes in ownership interest adjustment— — — — 124 — — — 124 (124) 
Common stock issued related to stock based compensation and other, net114 — — — (22)— — — (22)(11)(33)
Distributions to noncontrolling interest owners— — — — — — — — — (207)(207)
Net loss— — — — — — — (18,272)(18,272)(11,119)(29,391)
Balance, June 30, 2020168,587 $17 85,790 $9 $1,706,121 2,000 $(16,760)$(1,162,342)$527,045 $275,279 $802,324 
Stock based compensation expense— — — — 1,931 — — — 1,931 996 2,927 
Changes in ownership interest adjustment— — — — 1,110 — — — 1,110 (1,110) 
Common stock issued related to stock based compensation and other, net89 — — — (119)— — — (119)(61)(180)
Class A Common Stock repurchases— — — — — 1,100 (6,480)— (6,480)— (6,480)
Distributions to noncontrolling interest owners— — — — — — — — — (105)(105)
Net income— — — — — — — 9,147 9,147 4,548 13,695 
Balance, September 30, 2020168,676 $17 85,790 $9 $1,709,043 3,100 $(23,240)$(1,153,195)$532,634 $279,547 $812,181 


3


Magnolia Oil & Gas Corporation
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(In thousands)
Class A
Common Stock
Class B
Common Stock
Additional Paid In CapitalTreasury StockAccumulated DeficitTotal Stockholders’ EquityNoncontrolling InterestTotal
Equity
SharesValueSharesValueSharesValue
Balance, December 31, 2020168,755 $17 85,790 $9 $1,712,544 5,475 $(38,958)$(1,125,450)$548,162 $291,260 $839,422 
Stock based compensation expense— — — — 1,835 — — — 1,835 870 2,705 
Changes in ownership interest adjustment— — — — 28,924 — — — 28,924 (28,924) 
Common stock issued related to stock based compensation and other, net 244 — — — (839)— — — (839)(399)(1,238)
Class A Common Stock repurchases— — — — — 1,973 (20,281)— (20,281)— (20,281)
Class B Common Stock purchase and cancellation— — (5,000)(1)1 — — — — (50,781)(50,781)
Non-compete settlement375 — — — (11,231)— — — (11,231)(5,921)(17,152)
Conversion of Class B Common Stock to Class A Common Stock14,166 1 (14,166)(1)— — — — — —  
Distributions to noncontrolling interest owners— — — — — — — — — (155)(155)
Net income— — — — — — — 63,244 63,244 28,248 91,492 
Balance, March 31, 2021183,540 $18 66,624 $7 $1,731,234 7,448 $(59,239)$(1,062,206)$609,814 $234,198 $844,012 
Stock based compensation expense— — — — 2,577 — — — 2,577 951 3,528 
Changes in ownership interest adjustment— — — — (30,662)— — — (30,662)30,662  
Common stock issued related to stock based compensation and other, net 160 — — — (44)— — — (44)(17)(61)
Class A Common Stock repurchases— — — — — 2,025 (24,047)— (24,047)— (24,047)
Class B Common Stock purchase and cancellation— — (5,000)(1)1 — — — — (71,750)(71,750)
Non-compete settlement— — — — (18,527)— — — (18,527)(6,395)(24,922)
Conversion of Class B Common Stock to Class A Common Stock1,100 — (1,100)— — — — — — — — 
Distributions to noncontrolling interest owners— — — — — — — — — (276)(276)
Net income— — — — — — — 84,445 84,445 31,727 116,172 
Balance, June 30, 2021184,800 $18 60,524 $6 $1,684,579 9,473 $(83,286)$(977,761)$623,556 $219,100 $842,656 

4


Magnolia Oil & Gas Corporation
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(In thousands)

Class A
Common Stock
Class B
Common Stock
Additional Paid In CapitalTreasury StockAccumulated DeficitTotal Stockholders’ EquityNoncontrolling InterestTotal
Equity
SharesValueSharesValueSharesValue
Balance, June 30, 2021184,800 $18 60,524 $6 $1,684,579 9,473 $(83,286)$(977,761)$623,556 $219,100 $842,656 
Stock based compensation expense— — — — 2,180 — — — 2,180 730 2,910 
Changes in ownership interest adjustment— — — — (5,373)— — — (5,373)5,373  
Common stock issued related to stock based compensation and other, net219 — — — (1,348)— — — (1,348)(449)(1,797)
Class A Common Stock repurchases— — — — — 1,995 (29,510)— (29,510)— (29,510)
Class B Common Stock purchase and cancellation— — (3,000)— — — — — — (49,140)(49,140)
Conversion of Class B Common Stock to Class A Common Stock4,608 1 (4,608)(1)— — — — — —  
Dividends declared ($0.08 per share)
— — — — (14,233)— — — (14,233)— (14,233)
Distributions to noncontrolling interest owners— — — — — — — — — (5,276)(5,276)
Net income— — — — — — — 119,364 119,364 40,543 159,907 
Balance, September 30, 2021189,627 $19 52,916 $5 $1,665,805 11,468 $(112,796)$(858,397)$694,636 $210,881 $905,517 
The accompanying notes are an integral part to these consolidated financial statements.

5


Magnolia Oil & Gas Corporation
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended
September 30, 2021September 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME (LOSS)$367,571 $(1,910,995)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization134,268 238,273 
Amortization of intangible assets9,346 10,879 
Exploration expense, non-cash 561,629 
Impairment of oil and natural gas properties 1,381,258 
Asset retirement obligations accretion4,065 4,403 
Amortization of deferred financing costs3,149 2,710 
Unrealized loss on derivatives, net277 2,208 
Deferred taxes (77,834)
Stock based compensation9,143 8,871 
Other(85)(2,059)
Changes in operating assets and liabilities:
Accounts receivable(48,541)44,532 
Accounts payable44,834 (15,953)
Accrued liabilities(1,501)(15,468)
Drilling advances3,743 (174)
Other assets and liabilities, net1,666 (1,281)
Net cash provided by operating activities527,935 230,999 
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions(10,817)(73,702)
Additions to oil and natural gas properties(162,744)(157,325)
Changes in working capital associated with additions to oil and natural gas properties12,435 (18,972)
Other investing(2,316)(842)
Net cash used in investing activities(163,442)(250,841)
CASH FLOW FROM FINANCING ACTIVITIES
Class A Common Stock repurchases(70,316)(12,962)
Class B Common Stock purchases and cancellations(171,671) 
Non-compete settlement(42,074) 
Dividends paid(14,103) 
Cash paid for debt modification(4,976) 
Distributions to noncontrolling interest owners(5,706)(594)
Other financing activities(3,185)(702)
Net cash used in financing activities(312,031)(14,258)
NET CHANGE IN CASH AND CASH EQUIVALENTS52,462 (34,100)
Cash and cash equivalents – Beginning of period192,561 182,633 
Cash and cash equivalents – End of period$245,023 $148,533 
SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental cash items:
Cash paid (received) for income taxes$(1,128)$(724)
Cash paid for interest26,483 25,445 
Supplemental non-cash investing and financing activity:
Accruals or liabilities for capital expenditures$28,802 $21,750 
Supplemental non-cash lease operating activity:
Right-of-use assets obtained in exchange for operating lease obligations$4,429 $5,500 
The accompanying notes are an integral part of these consolidated financial statements.
6


Magnolia Oil & Gas Corporation
Notes to Consolidated Financial Statements

1. Description of Business and Basis of Presentation

Organization and Nature of Operations

Magnolia Oil & Gas Corporation (the “Company” or “Magnolia”) is an independent oil and natural gas company engaged in the acquisition, development, exploration, and production of oil, natural gas, and natural gas liquid (“NGL”) reserves. The Company’s oil and natural gas properties are located primarily in Karnes County and the Giddings area 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

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, certain disclosures normally included in an Annual Report on Form 10-K have been omitted. The consolidated financial statements and related notes included in this Quarterly Report should be read in conjunction with the Company’s consolidated and combined financial statements and related notes included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2020 (the “2020 Form 10-K”). Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated and combined financial statements included in the Company’s 2020 Form 10-K.

In the opinion of management, all normal, recurring adjustments and accruals considered necessary to present fairly, in all material respects, the Company’s interim financial results have been included. Operating results for the periods presented are not necessarily indicative of expected results for the full year.

Certain reclassifications of prior period financial statements have been made to conform to current reporting practices. The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of intercompany transactions and balances. The Company’s interests in oil and natural gas exploration and production ventures and partnerships are proportionately consolidated. The Company reflects a noncontrolling interest representing primarily the interest owned by the Magnolia LLC Unit Holders through their ownership of Magnolia LLC Units in the consolidated financial statements. The noncontrolling interest is presented as a component of equity. See Note 12—Stockholders’ Equity for further discussion of the noncontrolling interest.

2. Summary of Significant Accounting Policies
    
As of September 30, 2021, the Company’s significant accounting policies are consistent with those discussed in Note 2Summary of Significant Accounting Policies of its consolidated and combined financial statements contained in the Company’s 2020 Form 10-K.

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): “Simplifying the Accounting for Income Taxes,” which reduces the complexity of accounting for income taxes by removing certain exceptions to the general principles and also simplifying areas such as separate entity financial statements and interim recognition of enactment of tax laws or rate changes. This standard is effective for interim and annual periods beginning after December 15, 2020 and shall be applied on either a prospective basis, a retrospective basis for all periods presented, or a modified retrospective basis through a cumulative-effect adjustment to retained earnings depending on which aspects of the new standard are applicable to an entity. The Company adopted this standard on a prospective basis on January 1, 2021. The adoption of this guidance did not have any material impact on the Company’s financial position, cash flows, or results of operations.

7


3. Revenue Recognition

Magnolia’s revenues include the sale of crude oil, natural gas, and NGLs. Oil, natural gas, and NGL sales are recognized as revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts. Performance obligations are primarily comprised of delivery of oil, natural gas, or NGLs at a delivery point, as negotiated and reflected within each contract. Each barrel of oil, million Btu of natural gas, gallon of NGLs, or other unit of measure is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated.

The Company’s oil production is primarily sold under market-sensitive contracts that are typically priced at a differential to the New York Mercantile Exchange (“NYMEX”) price or at purchaser-posted prices for the producing area. For oil contracts, the Company generally records sales based on the net amount received.

For natural gas contracts, the Company generally records wet gas sales (which consists of natural gas and NGLs based on end products after processing) at the wellhead or inlet of the gas processing plant (i.e., the point of control transfer) as revenues net of gathering, transportation and processing expenses if the processor is the customer and there is no redelivery of commodities to the Company at the tailgate of the plant. Conversely, the Company generally records residual natural gas and NGL sales at the tailgate of the plant (i.e., the point of control transfer) on a gross basis along with the associated gathering, transportation and processing expenses if the processor is a service provider and there is redelivery of one or several commodities to the Company at the tailgate of the plant. The facts and circumstances of an arrangement are considered and judgment is often required in making this determination. For processing contracts that require noncash consideration in exchange for processing services, the Company recognizes revenue and an equal gathering, transportation and processing expense for commodities transferred to the service provider.

Customers are invoiced once the Company’s performance obligations have been satisfied. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 days. There are no judgments that significantly affect the amount or timing of revenue from contracts with customers. Additionally, the Company’s product sales contracts do not give rise to material contract assets or contract liabilities.

The Company’s receivables consist mainly of trade receivables from commodity sales and joint interest billings due from owners on properties the Company operates. Receivables from contracts with customers totaled $114.8 million as of September 30, 2021 and $72.0 million as of December 31, 2020.

The Company has concluded that disaggregating revenue by product type appropriately depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors and has reflected this disaggregation of revenue on the Company’s consolidated statements of operations for all periods presented.

Performance obligations are satisfied at a point in time once control of the product has been transferred to the customer. The Company considers a variety of facts and circumstances in assessing the point of control transfer, including, but not limited to: whether the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, the Company’s right to payment, and the transfer of legal title.

The Company does not disclose the value of unsatisfied performance obligations for contracts as all contracts have either an original expected length of one year or less, or the entire future consideration is variable and allocated entirely to a wholly unsatisfied performance obligation.

4. Acquisitions

2020 Acquisitions

On February 21, 2020, the Company completed the acquisition of certain non-operated oil and natural gas assets located in Karnes and DeWitt Counties, Texas, for approximately $69.7 million in cash. The transaction was accounted for as an asset acquisition.

8


5. Derivative Instruments

As of September 30, 2021, the Company had settled all of its natural gas costless collar derivative contracts. Prior to September 30, 2021, Magnolia utilized natural gas costless collars to reduce its exposure to price volatility for a portion of its natural gas production volumes. The Company’s policies do not permit the use of derivative instruments for speculative purposes. Under the Company’s costless collar contracts, each collar had an established floor price and ceiling price. When the settlement price was below the floor price, the counterparty was required to make a payment to the Company and when the settlement price was above the ceiling price, the Company was required to make a payment to the counterparty.

The Company has elected not to designate any of its derivative instruments as hedging instruments. Accordingly, changes in the fair value of the Company’s derivative instruments were recorded immediately to earnings as “Loss on derivatives, net” on the Company’s consolidated statements of operations.

The following table summarizes the effects of derivative instruments on the Company’s consolidated statements of operations during the three and nine months ended September 30, 2021 and 2020:

Three Months EndedNine Months Ended
 (In thousands)September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Derivative settlements, realized (loss)$(2,666)$ $(2,833)$ 
Unrealized gain (loss) on derivatives2,043 (2,208)(277)(2,208)
(Loss) on derivatives, net$(623)$(2,208)$(3,110)$(2,208)

The Company had no outstanding derivative contracts in place as of September 30, 2021.

See Note 6Fair Value Measurement for the fair value hierarchy of the Company’s derivative contracts.

6. Fair Value Measurements

Certain of the Company’s assets and liabilities are carried at fair value and measured either on a recurring or nonrecurring 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 Accounting Standards Codification (“ASC”) 820.

The three levels of the fair value hierarchy under ASC 820 are as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical investments at the measurement date are used.

Level 2 - Pricing inputs are other than quoted prices included within Level 1 that are observable for the investment, either directly or indirectly. Level 2 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 3 - 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.

Recurring Fair Value Measurements

Debt Obligations

The carrying value and fair value of the financial instrument that is not carried at fair value in the accompanying consolidated balance sheets at September 30, 2021 and December 31, 2020 is as follows:
September 30, 2021December 31, 2020
(In thousands)Carrying Value Fair ValueCarrying Value Fair Value
 Long-term debt$387,537 $410,880 $391,115 $407,500 
9


The fair value of the 2026 Senior Notes at September 30, 2021 and December 31, 2020 is based on unadjusted quoted prices in an active market, which is 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 instruments and their relatively short maturities. Non-financial assets and liabilities initially measured at fair value include assets acquired and liabilities assumed in business combinations and asset retirement obligations.

Derivative Instruments

The Company had no outstanding derivative instruments as of September 30, 2021. The fair values of the Company’s outstanding natural gas costless collar derivative instruments prior to September 30, 2021 were measured using an industry-standard pricing model and were provided by a third party. The inputs used in the third-party pricing model included quoted forward prices for natural gas, the contracted volumes, volatility factors, and time to maturity, which are considered Level 2 inputs.

The Company’s derivative instruments outstanding as of December 31, 2020 were recorded at fair value within “Other current assets” on the Company’s consolidated balance sheet. These fair values were recorded by netting asset and liability positions with the same counterparty and were subject to contractual terms that provided for net settlement.

The following table presents the classification of the outstanding derivative instruments and the fair value hierarchy table for the Company’s derivative assets and liabilities as of December 31, 2020 that were required to be measured at fair value on a recurring basis:

Fair Value Measurements Using
(In thousands)Level 1Level 2Level 3Total Fair ValueNettingCarrying Amount
December 31, 2020
Current assets:
Natural gas derivative instruments$ $1,375 $ $1,375 $(1,098)$277 
Current liabilities:
Natural gas derivative instruments$ $1,098 $ $1,098 $(1,098)$ 

See Note 5Derivative Instruments for additional information on the Company’s derivative contracts.

Nonrecurring Fair Value Measurements

The Company applies the provisions of the fair value measurement standard on a nonrecurring basis to its non-financial assets and liabilities, including oil and natural gas properties. These assets and liabilities are not measured at fair value on a recurring basis but are subject to fair value adjustments when facts and circumstances arise that indicate a need for remeasurement. 

During the first quarter of 2020, Magnolia recorded impairments of $1.9 billion related to proved and unproved properties as a result of a sharp decline in commodity prices. Proved property impairment of $1.4 billion is included in “Impairment of oil and natural gas properties” and unproved property impairment of $0.6 billion is included in “Exploration expense” on the Company’s consolidated statement of operations for the nine months ended September 30, 2020. Proved and unproved properties that were impaired had aggregate fair values of $0.8 billion and $0.3 billion, respectively. The fair values of these oil and natural gas properties were measured using the income approach based on inputs that are not observable in the market, and therefore, represent Level 3 inputs. The Company calculated the estimated fair values of its oil and natural gas properties using a discounted future cash flow model. Significant inputs associated with the calculation of discounted future net cash flows include estimates of future commodity prices based on NYMEX strip pricing adjusted for price differentials, estimates of proved oil and natural gas reserves and risk adjusted probable and possible reserves, estimates of future expected operating and capital costs, and a market participant based weighted average cost of capital of 10% for proved property impairments and 12% for unproved property impairments. No impairments were recorded for the three and nine months ended September 30, 2021.
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7. Intangible Assets

Non-Compete Agreement

On July 31, 2018 (the “Closing Date”), the Company and EnerVest, separate and apart from the Business Combination, entered into the Non-Compete, which prohibited EnerVest and certain of its affiliates from competing with the Company in the Eagle Ford Shale (the “Market Area”) until July 31, 2022 (“Prohibited Period End Date”). In January 2021, the Company amended the Non-Compete such that, rather than delivering an aggregate of 4.0 million shares of Class A Common Stock upon the two and one-half year and the four year anniversaries of the Closing Date, the Company would deliver (i) the cash value of approximately 2.0 million shares of Class A Common Stock and approximately 0.4 million shares of Class A Common Stock on the two and one-half year anniversary of the Closing Date and (ii) an aggregate of 1.6 million shares of Class A Common Stock on the four year anniversary of the Closing Date, in each case subject to the terms and conditions of the Non-Compete. On February 1, 2021, as consideration for compliance with the Non-Compete, the Company paid $17.2 million in cash and issued 0.4 million shares of Class A Common Stock.

On June 30, 2021, the Company amended the Non-Compete Prohibited Period End Date to terminate on June 30, 2021 and paid $24.9 million in cash in lieu of delivering the remaining 1.6 million shares of Class A Common Stock (the “Second Non-Compete Amendment”).

On the Closing Date of the initial Business Combination, 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 had a definite life and were subject to amortization utilizing the straight-line method over their economic life, previously estimated to be two and one-half to four years. The Second Non-Compete Amendment resulted in the Company accelerating the amortization of the remaining intangible assets. The Company includes the amortization in “Amortization of intangible assets” on the Company’s consolidated statements of operations.

(In thousands)September 30, 2021December 31, 2020
Non-compete intangible assets$44,400 $44,400 
Accumulated amortization(44,400)(35,054)
Intangible assets, net$ $9,346 
Weighted average amortization period (in years)2.703.25
8. Other Current Liabilities

The following table provides detail of the Company’s other current liabilities for the periods presented:
(In thousands)September 30, 2021December 31, 2020
Accrued capital expenditures$28,802 $16,368 
Other54,423 49,955 
Total Other current liabilities