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, 2022

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)

Delaware		81-5365682
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.0001	MGY	New 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 filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller 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 31, 2022, there were 187,488,487 shares of Class A Common Stock, $0.0001 par value per share, and 28,710,432 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.

“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.

“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.

“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.

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

“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.

“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.

“OPEC.” The Organization of the Petroleum Exporting Countries.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations (unaudited)	2
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited)	3
	Consolidated Statements of Cash Flows (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
Signatures		29

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Magnolia Oil & Gas Corporation

Consolidated Balance Sheets

(In thousands)

	September 30, 2022		December 31, 2021
ASSETS	(Unaudited)		(Audited)
CURRENT ASSETS
Cash and cash equivalents	$	689,539	$	366,982
Accounts receivable	207,718		149,769
Drilling advances	1,092		615
Other current assets	611		552
Total current assets	898,960		517,918
PROPERTY, PLANT AND EQUIPMENT
Oil and natural gas properties	2,718,433		2,381,812
Other	8,554		7,036
Accumulated depreciation, depletion and amortization	(1,352,138)		(1,172,761)
Total property, plant and equipment, net	1,374,849		1,216,087
OTHER ASSETS
Deferred financing costs, net	6,090		3,701
Other long-term assets	20,737		9,036
Total other assets	26,827		12,737
TOTAL ASSETS	$	2,300,636	$	1,746,742
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	214,609	$	127,909
Other current liabilities (Note 7)	127,363		90,636
Total current liabilities	341,972		218,545
LONG-TERM LIABILITIES
Long-term debt, net	389,794		388,087
Asset retirement obligations, net of current	92,652		89,715
Other long-term liabilities	6,512		5,146
Total long-term liabilities	488,958		482,948
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS’ EQUITY
Class A Common Stock, $0.0001 par value, 1,300,000 shares authorized, 208,758 shares issued and 187,474 shares outstanding in 2022 and 193,437 shares issued and 179,270 shares outstanding in 2021	21		19
Class B Common Stock, $0.0001 par value, 225,000 shares authorized, 28,710 shares issued and outstanding in 2022 and 49,293 shares issued and outstanding in 2021	3		5
Additional paid-in capital	1,637,279		1,689,500
Treasury Stock, at cost, 21,283 shares and 14,168 shares in 2022 and 2021, respectively	(320,204)		(164,599)
Accumulated deficit	(46,069)		(708,168)
Noncontrolling interest	198,676		228,492
Total equity	1,469,706		1,045,249
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,300,636	$	1,746,742

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 Ended				Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
REVENUES
Oil revenues	$	317,243	$	195,642	$	912,702	$	531,300
Natural gas revenues	100,124		43,781		242,049		112,758
Natural gas liquids revenues	65,596		45,619		190,700		102,140
Total revenues	482,963		285,042		1,345,451		746,198
OPERATING EXPENSES
Lease operating expenses	34,709		23,593		96,057		64,957
Gathering, transportation and processing	19,297		11,540		51,518		32,069
Taxes other than income	26,623		14,082		74,917		38,657
Exploration expenses	1,173		317		10,119		2,440
Asset retirement obligations accretion	814		1,329		2,404		4,065
Depreciation, depletion and amortization	68,972		47,993		179,331		134,268
Amortization of intangible assets	—		—		—		9,346
General and administrative expenses	19,625		14,695		55,226		59,816
Total operating expenses	171,213		113,549		469,572		345,618
OPERATING INCOME	311,750		171,493		875,879		400,580
OTHER INCOME (EXPENSE)
Interest expense, net	(5,263)		(7,474)		(21,637)		(23,519)
Loss on derivatives, net	—		(623)		—		(3,110)
Other income (expense), net	(166)		142		6,579		48
Total other expense, net	(5,429)		(7,955)		(15,058)		(26,581)
INCOME BEFORE INCOME TAXES	306,321		163,538		860,821		373,999
Income tax expense	19,358		3,631		65,333		6,428
NET INCOME	286,963		159,907		795,488		367,571
LESS: Net income attributable to noncontrolling interest	41,486		40,543		133,389		100,518
NET INCOME ATTRIBUTABLE TO CLASS A COMMON STOCK	$	245,477	$	119,364	$	662,099	$	267,053
NET INCOME PER SHARE OF CLASS A COMMON STOCK
Basic	$	1.29	$	0.68	$	3.52	$	1.54
Diluted	$	1.29	$	0.67	$	3.51	$	1.53
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic	188,635		174,764		186,475		172,281
Diluted	189,074		175,683		186,967		173,280

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 Capital		Treasury Stock			Accumulated Deficit		Total Stockholders’ Equity		Noncontrolling Interest		Total Equity
For the Three Months Ended September 30, 2021	Shares	Value		Shares	Value				Shares	Value
Balance, June 30, 2021	184,800	$	18	60,524	$	6	$	1,684,579	9,473	$	(83,286)	$	(977,761)	$	623,556	$	219,100	$	842,656
Stock based compensation expense, net of forfeitures	—	—		—	—		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, net	219	—		—	—		(1,345)		—	—		—		(1,345)		(449)		(1,794)
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 Stock	4,608	1		(4,608)	(1)		—		—	—		—		—		—		—
Dividends declared ($0.08 per share)	—	—		—	—		(14,236)		—	—		—		(14,236)		—		(14,236)
Distributions to noncontrolling interest owners	—	—		—	—		—		—	—		—		—		(5,276)		(5,276)
Net income	—	—		—	—		—		—	—		119,364		119,364		40,543		159,907
Balance, September 30, 2021	189,627	$	19	52,916	$	5	$	1,665,805	11,468	$	(112,796)	$	(858,397)	$	694,636	$	210,881	$	905,517
For the Three Months Ended September 30, 2022
Balance, June 30, 2022	208,729	$	21	28,710	$	3	$	1,647,637	18,283	$	(257,837)	$	(291,546)	$	1,098,278	$	170,279	$	1,268,557
Stock based compensation expense, net of forfeitures	—	—		—	—		3,004		—	—		—		3,004		458		3,462
Changes in ownership interest adjustment	—	—		—	—		5,914		—	—		—		5,914		(5,914)		—
Common stock issued related to stock based compensation and other, net	29	—		—	—		(164)		—	—		—		(164)		(25)		(189)
Class A Common Stock repurchases	—	—		—	—		—		3,000	(62,367)		—		(62,367)		—		(62,367)
Dividends declared ($0.10 per share)	—	—		—	—		(19,112)		—	—		—		(19,112)		—		(19,112)
Distributions to noncontrolling interest owners	—	—		—	—		—		—	—		—		—		(7,608)		(7,608)
Net income	—	—		—	—		—		—	—		245,477		245,477		41,486		286,963
Balance, September 30, 2022	208,758	$	21	28,710	$	3	$	1,637,279	21,283	$	(320,204)	$	(46,069)	$	1,271,030	$	198,676	$	1,469,706

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

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 Capital		Treasury Stock			Accumulated Deficit		Total Stockholders’ Equity		Noncontrolling Interest		Total Equity
For the Nine Months Ended September 30, 2021	Shares	Value		Shares	Value				Shares	Value
Balance, December 31, 2020	168,755	$	17	85,790	$	9	$	1,712,544	5,475	$	(38,958)	$	(1,125,450)	$	548,162	$	291,260	$	839,422
Stock based compensation expense, net of forfeitures	—	—		—	—		6,592		—	—		—		6,592		2,551		9,143
Changes in ownership interest adjustment	—	—		—	—		(7,111)		—	—		—		(7,111)		7,111		—
Common stock issued related to stock based compensation and other, net	623	—		—	—		(2,228)		—	—		—		(2,228)		(866)		(3,094)
Class A Common Stock repurchases	—	—		—	—		—		5,993	(73,838)		—		(73,838)		—		(73,838)
Class B Common Stock purchase and cancellation	—	—		(13,000)	(2)		2		—	—		—		—		(171,671)		(171,671)
Non-compete settlement	375	—		—	—		(29,758)		—	—		—		(29,758)		(12,316)		(42,074)
Conversion of Class B Common Stock to Class A Common Stock	19,874	2		(19,874)	(2)		—		—	—		—		—		—		—
Dividends declared ($0.08 per share)	—	—		—	—		(14,236)		—	—		—		(14,236)		—		(14,236)
Distributions to noncontrolling interest owners	—	—		—	—		—		—	—		—		—		(5,706)		(5,706)
Net income	—	—		—	—		—		—	—		267,053		267,053		100,518		367,571
Balance, September 30, 2021	189,627	$	19	52,916	$	5	$	1,665,805	11,468	$	(112,796)	$	(858,397)	$	694,636	$	210,881	$	905,517
For the Nine Months Ended September 30, 2022
Balance, December 31, 2021	193,437	$	19	49,293	$	5	$	1,689,500	14,168	$	(164,599)	$	(708,168)	$	816,757	$	228,492	$	1,045,249
Stock based compensation expense, net of forfeitures	—	—		—	—		8,353		—	—		—		8,353		1,511		9,864
Changes in ownership interest adjustment	—	—		—	—		1,013		—	—		—		1,013		(1,013)		—
Common stock issued related to stock based compensation and other, net	688	—		—	—		(5,192)		—	—		—		(5,192)		(1,098)		(6,290)
Class A Common Stock repurchases	—	—		—	—		—		7,115	(155,605)		—		(155,605)		—		(155,605)
Class B Common Stock purchase and cancellation	—	—		(5,950)	—		—		—	—		—		—		(138,753)		(138,753)
Conversion of Class B Common Stock to Class A Common Stock	14,633	2		(14,633)	(2)		—		—	—		—		—		—		—
Dividends declared ($0.30 per share)	—	—		—	—		(56,395)		—	—		—		(56,395)		—		(56,395)
Distributions to noncontrolling interest owners	—	—		—	—		—		—	—		—		—		(23,852)		(23,852)
Net income	—	—		—	—		—		—	—		662,099		662,099		133,389		795,488
Balance, September 30, 2022	208,758	$	21	28,710	$	3	$	1,637,279	21,283	$	(320,204)	$	(46,069)	$	1,271,030	$	198,676	$	1,469,706

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

4

Magnolia Oil & Gas Corporation

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Nine Months Ended
	September 30, 2022		September 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME	$	795,488	$	367,571
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	179,331		134,268
Amortization of intangible assets	—		9,346
Asset retirement obligations accretion	2,404		4,065
Amortization of deferred financing costs	4,812		3,149
Unrealized loss on derivatives, net	—		277
Stock based compensation	9,864		9,143
Other	—		(85)
Changes in operating assets and liabilities:
Accounts receivable	(57,949)		(48,541)
Accounts payable	86,700		44,834
Accrued liabilities	19,443		(1,501)
Drilling advances	(477)		3,743
Other assets and liabilities, net	(10,931)		1,666
Net cash provided by operating activities	1,028,685		527,935
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions	(11,749)		(10,817)
Additions to oil and natural gas properties	(323,510)		(162,744)
Changes in working capital associated with additions to oil and natural gas properties	14,152		12,435
Other investing	(1,187)		(2,316)
Net cash used in investing activities	(322,294)		(163,442)
CASH FLOW FROM FINANCING ACTIVITIES
Class A Common Stock repurchases	(153,138)		(70,316)
Class B Common Stock purchases and cancellations	(138,753)		(171,671)
Non-compete settlement	—		(42,074)
Dividends paid	(56,220)		(14,103)
Cash paid for debt modification	(5,494)		(4,976)
Distributions to noncontrolling interest owners	(23,852)		(5,706)
Other financing activities	(6,377)		(3,185)
Net cash used in financing activities	(383,834)		(312,031)
NET CHANGE IN CASH AND CASH EQUIVALENTS	322,557		52,462
Cash and cash equivalents – Beginning of period	366,982		192,561
Cash and cash equivalents – End of period	$	689,539	$	245,023
SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental cash items:
Cash paid for income taxes	$	60,906	$	(1,128)
Cash paid for interest	26,060		26,483
Supplemental non-cash investing and financing activity:
Accruals or liabilities for capital expenditures	$	44,088	$	28,802
Supplemental non-cash lease operating activity:
Right-of-use assets obtained in exchange for operating lease obligations	$	3,773	$	4,429

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

5

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 financial statements and related notes included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2021 (the “2021 Form 10-K”). Except as disclosed herein, there have been no material changes to the information disclosed in the Notes to the Consolidated Financial Statements included in the Company’s 2021 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 11—Stockholders’ Equity for further discussion of the noncontrolling interest.

2. Summary of Significant Accounting Policies

As of September 30, 2022, the Company’s significant accounting policies are consistent with those discussed in Note 1—Organization and Summary of Significant Accounting Policies of its consolidated financial statements contained in the Company’s 2021 Form 10-K.

3. Revenue Recognition

Magnolia’s revenues include the sale of crude oil, natural gas, and NGLs. 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. 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 $160.6 million as of September 30, 2022 and $125.1 million as of December 31, 2021. For further detail regarding the Company’s revenue recognition policies, please refer to Note 1—Organization and Summary of Significant Accounting Policies of the consolidated financial statements contained in the Company’s 2021 Form 10-K.

6

4. Derivative Instruments

The Company settled all of its natural gas costless collar derivative contracts by September 30, 2021. From September 30, 2020 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 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:

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

The Company had no outstanding derivative contracts in place as of September 30, 2022.

5. 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

The carrying value and fair value of the financial instrument that is not carried at fair value in the Company’s consolidated balance sheets at September 30, 2022 and December 31, 2021 are as follows:

	September 30, 2022				December 31, 2021
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt	$	389,794	$	380,508	$	388,087	$	411,500

The fair value of the 2026 Senior Notes at September 30, 2022 and December 31, 2021 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

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liabilities initially measured at fair value include assets acquired and liabilities assumed in business combinations and asset retirement obligations.

Nonrecurring Fair Value Measurements

Certain of the Company’s assets and liabilities are measured at fair value on a nonrecurring basis. Specifically, stock based compensation is not measured at fair value on an ongoing basis but is subject to fair value calculations in certain circumstances. For further detail, see Note 12—Stock Based Compensation in the Notes to the Consolidated Financial Statements. There were no other nonrecurring fair value measurements as of September 30, 2022 or December 31, 2021.

6. 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 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 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”). 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.

7. Other Current Liabilities

The following table provides detail of the Company’s other current liabilities for the periods presented:

(In thousands)	September 30, 2022		December 31, 2021
Accrued capital expenditures	$	44,088	$	29,936
Other	83,275		60,700
Total other current liabilities	$	127,363	$	90,636

8. Long-term Debt

The Company’s long-term debt is comprised of the following:

(In thousands)	September 30, 2022		December 31, 2021
Revolving credit facility	$	—	$	—
Senior Notes due 2026	400,000		400,000
Total long-term debt	400,000		400,000
Less: Unamortized deferred financing cost	(10,206)		(11,913)
Long-term debt, net	$	389,794	$	388,087

Credit Facility

In connection with the consummation of the Business Combination, the RBL Facility was entered into by and 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. On February 16, 2022, Magnolia Operating, as borrower,

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amended and restated the RBL Facility (“Amended and Restated RBL Facility”) in its entirety, providing for maximum commitments in an aggregate principal amount of $1.0 billion with a letter of credit facility with a $50.0 million sublimit, with an initial borrowing base of $450.0 million. The Amended and Restated RBL Facility, maturing in February 2026, 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.

Borrowings under the Amended and Restated RBL Facility bear interest, at Magnolia Operating’s option, at a rate per annum equal to either the term SOFR 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 Amended and Restated RBL Facility. The applicable margin and the commitment fee rate are calculated based upon the utilization levels of the Amended and Restated RBL Facility as a percentage of unused lender commitments then in effect.

The Amended and Restated RBL Facility contains certain affirmative and negative covenants customary for financings of this type, including compliance with a leverage ratio of less than 3.50 to 1.00 and a current ratio of greater than 1.00 to 1.00. As of September 30, 2022, the Company was in compliance with all covenants under the Amended and Restated RBL Facility. The Company incurred approximately $5.5 million of lender and transaction fees related to the modification of which $5.1 million were recorded as deferred financing costs and will be amortized prospectively over the remaining term of the Amended and Restated RBL Facility and $0.4 million of which were expensed and are reflected in “Interest expense, net” on the Company’s consolidated statements of operations for the nine months ended September 30, 2022.

Deferred financing costs in connection with the Amended and Restated RBL Facility are amortized on a straight-line basis over a period of four years from February 2022 to February 2026 and included in “Interest expense, net” in the Company’s consolidated statements of operations. The Company recognized interest expense related to the Amended and Restated RBL Facility and the RBL Facility, as applicable, of $1.1 million and $1.0 million for the three months ended September 30, 2022 and 2021, respectively, and $4.8 million and $3.1 million for the nine months ended September 30, 2022 and 2021, respectively. The unamortized portion of the deferred financing costs is included in “Deferred financing costs, net” on the Company’s consolidated balance sheet as of September 30, 2022.

The Company did not have any outstanding borrowings under the Amended and Restated RBL Facility as of September 30, 2022.

2026 Senior Notes

On July 31, 2018, the Issuers issued and sold $400.0 million aggregate principal amount of 2026 Senior Notes in a private placement under Rule 144A and Regulation S under the Securities Act of 1933, as amended. The 2026 Senior Notes were issued under the Indenture, dated as of July 31, 2018 (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 and bear interest at the rate of 6.0% per annum.

On April 5, 2021, the terms of the Indenture were amended to modify, among other things, the criteria used by the Company to make Restricted Payments (as defined in the Indenture). The amendment to the Indenture was accounted for as a debt modification. Costs incurred with third parties directly related to the modification were expensed as incurred. The Company incurred approximately $1.1 million of transaction fees in the second quarter of 2021 related to the modification which were expensed. The Company also paid $5.0 million in fees to holders of the 2026 Senior Notes, which fees are recorded as deferred financing costs and amortized using the new effective interest rate applied prospectively over the remaining term of the 2026 Senior Notes.

Deferred financing costs related to the issuance of, and the amendment to the Indenture governing, the 2026 Senior Notes 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 statements 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 has been recorded as “Long-term debt, net” on the Company’s consolidated balance sheet as of September 30, 2022. The Company recognized interest expense related to the 2026 Senior Notes of $6.6 million and $6.5 million for the three months ended September 30, 2022 and 2021, respectively, and $19.7 million and $20.5 million for the nine months ended September 30, 2022 and 2021, respectively.

At any time, the Issuers may redeem all or a part of the 2026 Senior Notes based on principal plus a set premium, as set forth in the Indenture, including any accrued and unpaid interest.

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9. Commitments and Contingencies

Legal Matters

From time to time, the Company is or may become involved in litigation in the ordinary course of business.

Certain of the Magnolia LLC Unit Holders and EnerVest Energy Institutional Fund XIV-C, L.P. (collectively the “Co-Defendants”) 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 Assets. The litigation is in the pre-trial stage. The exposure related to this litigation is currently not reasonably estimable. The Co-Defendants retained all such liability in connection with the Business Combination.

A mineral owner in a Magnolia operated well in Karnes County, Texas filed a complaint with the Texas Railroad Commission (the “Commission”) challenging the validity of the permit to drill such well by questioning the long-standing process by which the Commission granted the permit. After the Commission affirmed the granting of the permit, and after judicial review of the Commission’s order by the 53rd Judicial District Court Travis County, Texas (the “District Court”), the District Court reversed and remanded the Commission’s order. The Commission and Magnolia have appealed the District Court’s judgment to the Third Court of Appeals in Austin, Texas.

At September 30, 2022, the Company does not believe the outcome of any such disputes or legal actions will have a material effect on its consolidated statements of operations, balance sheet, or cash flows. No amounts were accrued with respect to outstanding litigation at September 30, 2022 or September 30, 2021.

Environmental Matters

The Company, as an owner or lessee and operator of oil and natural gas properties, is subject to various federal, state, and local laws and regulations relating to discharge of materials into, and the protection of, the environment. These laws and regulations may, among other things, impose liability on a lessee under an oil and natural 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 an 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 

The Company’s revenue, profitability, and future growth are substantially dependent upon the prevailing and future prices for oil and natural gas, which depend on numerous factors beyond the Company’s control such as overall oil and natural gas production and inventories in relevant markets, economic conditions, the global and domestic political environments, regulatory developments, and competition from other energy sources. Oil and natural gas prices historically have been volatile and may be subject to significant fluctuations in the future. Additionally, the economy has begun to experience elevated inflation levels as a result of global supply and demand imbalances. Inflationary pressures and labor shortages could result in further increases to our operating and capital costs.

The coronavirus disease 2019 (“COVID-19”) pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the oil and natural gas industry. While oil and natural gas prices have increased since 2020, the extent of any further impact of the pandemic, including the emergence and spread of variant strains of COVID-19, on the Company’s industry and business cannot be reasonably predicted at this time. Further, Russia’s invasion of Ukraine in the first quarter of 2022, and global sanctions placed on Russia in response, have had and may continue to have a global impact on supply and demand for oil and natural gas. Magnolia continues to monitor any impacts from the Russia-Ukraine war on the global markets for its commodities.

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10. Income Taxes

The Company’s income tax provision consists of the following components:

	Three Months Ended				Nine Months Ended
(In thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Current:
Federal	$	18,009	$	2,604	$	60,695	$	4,248
State	1,349		1,027		4,638		2,180
	19,358		3,631		65,333		6,428
Deferred:
Federal	—		—		—		—
State	—		—		—		—
	—		—		—		—
Income tax expense	$	19,358	$	3,631	$	65,333	$	6,428

The Company is subject to U.S. federal income tax, margin tax in the state of Texas, and Louisiana corporate income tax. The Company estimates its annual effective tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which it operates. The Company’s effective tax rate for the three months ended September 30, 2022 and 2021 was 6.3% and 2.2%, respectively. The Company’s effective tax rate for the nine months ended September 30, 2022 and 2021 was 7.6% and 1.7%, respectively. As a result of impairments in the first quarter of 2020, the Company established full valuation allowances on the federal and state deferred tax assets, which resulted in additional differences between the effective tax rate and the statutory rate as of September 30, 2022 and September 30, 2021. The primary differences between the annual effective tax rate and the statutory rate of 21.0% are income attributable to noncontrolling interest, state taxes, and valuation allowances.

As of September 30, 2022, the Company does not anticipate recognition of any significant liabilities for uncertain tax positions during the next 12 months. For the nine months ended September 30, 2022, no amounts were incurred for interest and penalties. Currently, the Company is not aware of any issues under review that could result in significant payments, accruals, or a 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.

During the nine months ended September 30, 2022, the Magnolia LLC Unit Holders redeemed 14.6 million Magnolia LLC Units (and a corresponding number of shares of Class B Common Stock) for an equivalent number of shares of Class A Common Stock and subsequently sold these shares to the public. Magnolia did not receive any proceeds from the sale of shares of Class A Common Stock by the Magnolia LLC Unit Holders. The redemption and exchange of these Magnolia LLC Units created additional tax basis in Magnolia LLC. There was no net tax impact as the Company recorded a full valuation allowance.

As of September 30, 2022, the Company’s net deferred tax asset was $164.9 million. Management assessed whether it is more-likely-than-not that it will generate sufficient taxable income to realize its deferred income tax assets, including the investment in partnership and net operating loss carryforwards. In making this determination, the Company considered all available positive and negative evidence and made certain assumptions. The Company considered, among other things, the overall business environment, its historical earnings and losses, current industry trends, and its outlook for future years. As of September 30, 2022, the Company assessed the realizability of the deferred tax assets and recorded a full valuation allowance of $164.9 million.

As commodity prices have improved during 2021 and 2022, Magnolia has begun to sustain a level of increased profitability such that, net of its net operating loss, Magnolia is recognizing taxable income. As this continues, increased weight will be given to positive operating results, along with projections of future taxable income, in determining whether future taxable income will be sufficient to provide for realization of the Company’s deferred tax assets, and if so, this new evidence may result in a change in estimate of the Company’s valuation allowance in the next 12 months.

On August 16, 2022, the U.S. enacted legislation referred to as the Inflation Reduction Act (“IRA”), which significantly changes U.S. corporate income tax laws and is effective for tax years beginning after December 31, 2022. These changes include, among others, a new 15% corporate alternative minimum tax on adjusted financial statement income of corporations with profits over $1 billion, a 1% excise tax on stock buybacks, and various tax incentives for energy and climate initiatives. The Company is in the process of evaluating the provisions of the IRA, but it does not currently believe the IRA will have a material impact on its reported results, cash flows or financial position when it becomes effective.

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11. Stockholders’ Equity

Class A Common Stock

At September 30, 2022, there were 208.8 million shares of Class A Common Stock issued and 187.5 million shares of Class A Common Stock 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 Company’s outstanding common shares being able to elect all of the directors, subject to voting obligations under the Stockholder Agreement. In the event of a liquidation, dissolution, or winding up of the Company, the holders of the Class A Common Stock 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

At September 30, 2022, there were 28.7 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 shares of 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 Magnolia LLC, the holders of the Class B Common Stock, through their ownership of Magnolia LLC Units, 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 units of Magnolia LLC, if any, having preference over the common units. 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.

Share Repurchases

The Company’s board of directors has authorized a share repurchase program of up to 30.0 million shares of Class A Common Stock. The program does not require purchases to be made within a particular time frame. As of September 30, 2022, the Company had repurchased 20.7 million shares under the program at a cost of $308.6 million.

During the nine months ended September 30, 2022, the Company also repurchased 0.6 million shares of Class A Common Stock for $11.6 million from EnerVest Energy Institutional Fund XIV-C, L.P. outside of the share repurchase program.

During the nine months ended September 30, 2022 Magnolia LLC repurchased and subsequently canceled 5.9 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock for $138.8 million of cash consideration (the “Class B Common Stock Repurchases”). During the same period, the Magnolia LLC Unit Holders redeemed 14.6 million Magnolia LLC Units (and a corresponding number of shares of Class B Common Stock) for an equivalent number of shares of Class A Common Stock and subsequently sold these shares to the public.

During the nine months ended September 30, 2021 Magnolia LLC repurchased and subsequently canceled 13.0 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock for $171.7 million of cash consideration (the “Class B Common Stock Repurchases”). During the same period, the Magnolia LLC Unit Holders redeemed 19.9 million Magnolia LLC Units (and a corresponding number of shares of Class B Common Stock) for an equivalent number of shares of Class A Common Stock and subsequently sold these shares to the public.

Magnolia did not receive any proceeds from the sale of shares of Class A Common Stock by the Magnolia LLC Unit Holders. Magnolia funded the Class B Common Stock Repurchases with cash on hand.

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Dividends and Distributions

In 2021, the Company’s board of directors announced the Company’s first dividend, payable on issued and outstanding shares of Class A Common Stock, and a corresponding distribution from Magnolia LLC to Magnolia LLC Unit Holders.

Dividends in excess of retained earnings are recorded as a reduction of additional paid-in capital. The dividends declared in 2022 and 2021 were recorded as a reduction of additional paid-in capital on the Company’s consolidated balance sheets as of September 30, 2022 and December 31, 2021. The distributions to the Magnolia LLC Unit Holders were recorded as a reduction of noncontrolling interest on the Company’s consolidated balance sheets as of September 30, 2022 and December 31, 2021.

The following table sets forth information with respect to cash dividends and distributions declared by the Company’s board of directors during the nine months ended September 30, 2022 and the year ended December 31, 2021, on its own behalf and in its capacity as the managing member of Magnolia LLC, on issued and outstanding shares of Class A Common Stock and Magnolia LLC Units:

Record Date	Payment Date	Dividend/ Distribution Amount per share (1)		Distributions by Magnolia LLC (2)		Dividends Declared by the Company (2)		Distributions to Magnolia LLC Unit Holders
(In thousands, except per share amounts)
August 12, 2022	September 1, 2022	$	0.10	$	21,983	$	19,112	$	2,871
February 14, 2022	March 1, 2022	$	0.20	$	45,851	$	37,283	$	8,568
August 12, 2021	September 1, 2021	$	0.08	$	19,078	$	14,236	$	4,842

(1)    Per share of Class A Common Stock and per Magnolia LLC Unit.

(2)    Reflects total cash dividend and distribution payments made, or to be made, to holders of Class A Common Stock and Magnolia LLC Unit Holders (other than the Company) as of the applicable record date.

Noncontrolling Interest

Noncontrolling interest in Magnolia’s consolidated subsidiaries includes amounts attributable to Magnolia LLC Units that were issued to the Magnolia LLC Unit Holders in connection with the Business Combination. The noncontrolling interest percentage is affected by various equity transactions such as issuances and repurchases of Class A Common Stock, the exchange of Class B Common Stock (and corresponding Magnolia LLC Units) for Class A Common Stock, or the cancellation of Class B Common Stock (and corresponding Magnolia LLC Units). As of September 30, 2022, Magnolia owned approximately 86.7% of the interest in Magnolia LLC and the noncontrolling interest was approximately 13.3%.

In the first quarter of 2019, Magnolia Operating formed Highlander Oil & Gas Holdings LLC (“Highlander”) as a joint venture whereby MGY Louisiana LLC, a wholly owned subsidiary of Magnolia Operating, holds approximately 84.7% of the units of Highlander, with the remaining 15.3% attributable to noncontrolling interest.

12. Stock Based Compensation

On October 8, 2018, the Company’s board of directors adopted the “Magnolia Oil & Gas Corporation Long Term Incentive Plan” (as amended, the “Plan”), effective as of July 17, 2018. A total of 16.8 million shares of Class A Common Stock have been authorized for issuance under the Plan as of September 30, 2022. The Company grants stock based compensation awards in the form of restricted stock units (“RSU”), performance restricted stock units (“PRSU”), and performance stock units (“PSU”) to eligible employees and directors 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 net of forfeitures within “General and administrative expenses” and “Lease operating expenses” on the consolidated statements of operations and was $3.5 million and $2.9 million for the three months ended September 30, 2022 and 2021, respectively, and $9.9 million and $9.1 million for the nine months ended September 30, 2022 and 2021, respectively. The Company has elected to account for forfeitures of awards granted under the Plan as they occur in determining compensation expense.

The following table presents a summary of Magnolia’s unvested RSU, PRSU, and PSU activity for the three months ended September 30, 2022.

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	Restricted Stock Units			Performance Restricted Stock Units			Performance Stock Units
	Units	Weighted Average Grant Date Fair Value		Units	Weighted Average Grant Date Fair Value		Units	Weighted Average Grant Date Fair Value
Unvested at June 30, 2022	1,053,514	$	11.83	1,261,957	$	13.29	278,485	$	6.14
Granted	14,077	22.63		7,341	23.41		—	—
Vested	(34,404)	11.11		(2,471)	12.20		—	—
Forfeited	(12,528)	12.56		(9,000)	13.42		—	—
Unvested at September 30, 2022	1,020,659	$	11.99	1,257,827	$	13.35	278,485	$	6.14

The following table presents a summary of Magnolia’s unvested RSU, PRSU, and PSU activity for the nine months ended September 30, 2022.

	Restricted Stock Units			Performance Restricted Stock Units			Performance Stock Units
	Units	Weighted Average Grant Date Fair Value		Units	Weighted Average Grant Date Fair Value		Units	Weighted Average Grant Date Fair Value
Unvested at December 31, 2021	1,187,509	$	8.94	968,654	$	9.36	460,414	$	9.20
Granted	301,296	21.00		514,306	19.21		—	—
Granted for performance multiple(1)	—	—		—	—		90,965	13.88
Vested	(441,512)	9.89		(215,197)	9.36		(272,894)	13.88
Forfeited	(26,634)	12.62		(9,936)	13.23		—	—
Unvested at September 30, 2022	1,020,659	$	11.99	1,257,827	$	13.35	278,485	$	6.14

(1)    Upon completion of the performance period for the PSUs granted in 2019, a performance multiple of 150% was applied to each of the grants resulting in additional grants of PSUs in 2022.

Restricted Stock Units

The Company grants service-based RSU awards to employees, which generally vest ratably over a three-year or four-year service period, and to non-employee directors, which vest in full after one year. 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 that vest. RSUs are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ceases to be an employee or director of the Company 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 for each separately vesting portion of the award, as if the award was, in-substance, multiple awards. The aggregate fair value of RSUs that vested during the nine months ended September 30, 2022 and 2021 was $11.0 million and $7.0 million, respectively. Unrecognized compensation expense related to unvested RSUs as of September 30, 2022 was $8.4 million, which the Company expects to recognize over a weighted average period of 2.5 years.

Performance Restricted Stock Units and Performance Stock Units

The Company grants PRSUs to certain employees. Each PRSU represents the contingent right to receive one share of Class A Common Stock once the PRSU is both vested and earned. PRSUs generally vest either ratably over a three-year service period or at the end of a three-year service period, in each case, subject to the recipient’s continued employment or service through each applicable vesting date. Each PRSU is earned based on whether Magnolia’s stock price achieves a target average stock price for any 20 consecutive trading days during the five-year performance period. If PRSUs are not earned by the end of the five-year performance period (“Performance Condition”), the PRSUs will be forfeited and no shares of Class A Common Stock will be issued, even if the vesting conditions have been met. Compensation expense for the PRSU awards is based upon grant date fair market value of the award, calculated using a Monte Carlo simulation, as presented below, and such costs are recorded on a straight-line basis over the requisite service period for each separately vesting portion of the award, as if the award was, in-substance, multiple awards, as applicable. The aggregate fair value of PRSU awards that vested during the nine months ended September 30, 2022 was $4.8 million. Unrecognized compensation expense related to unvested PRSUs as of September 30, 2022 was $11.0 million, which the Company expects to recognize over a weighted average period of 2.1 years.

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The Company grants PSUs to certain employees. Each PSU, to the extent earned, represents the contingent right to receive one share of Class A Common Stock and the awardee may earn between zero and 150% of the target 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 a three-year performance period, the last day of which is also the vesting date. In addition to the TSR conditions, vesting of the PSUs is subject to the awardee’s continued employment through the date of settlement of the PSUs, which will occur within 60 days following the end of the performance period. The aggregate fair value of PSU awards that vested during the nine months ended September 30, 2022 and 2021 was $5.5 million and $4.0 million, respectively. Unrecognized compensation expense related to unvested PSUs as of September 30, 2022 was $0.2 million, which the Company expects to recognize over a weighted average period of 0.3 years.

The grant date fair values of the PRSUs granted during the nine months ended September 30, 2022 and 2021, were $9.9 million and $9.5 million, respectively. Since the Performance Condition for the PRSUs granted in 2022 and 2021 were met on March 28, 2022 and March 17, 2021, respectively, the fair value of the PRSUs granted after the Performance Condition were met were based upon the grant date market value of the award. The fair values of the awards granted prior to the date the Performance Condition was met were determined using a Monte Carlo simulation, which assumptions are summarized in the table below.

	Nine Months Ended
PRSU Grant Date Fair Value Assumptions	September 30, 2022	September 30, 2021
Expected term (in years)	3.55	3.64
Expected volatility	59.58%	55.18%
Risk-free interest rate	1.89%	0.56%
Dividend yield	1.97%	—%

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13. Earnings Per Share

The Company’s unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are deemed participating securities, and therefore dividends and net income allocated to such awards have been deducted from earnings in computing basic and diluted net income per share under the two-class method. Diluted net income per share attributable to Class A Common Stock is calculated under both the two-class method and the treasury stock method and the more dilutive of the two calculations is presented.

The components of basic and diluted net income per share attributable to Class A Common Stock are as follows:

	Three Months Ended				Nine Months Ended
(In thousands, except per share data)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Basic:
Net income attributable to Class A Common Stock	$	245,477	$	119,364	$	662,099	$	267,053
Less: Dividends and net income allocated to participating securities	2,297		939		6,050		1,714
Net income, net of participating securities	$	243,180	$	118,425	$	656,049	$	265,339
Weighted average number of common shares outstanding during the period - basic	188,635		174,764		186,475		172,281
Net income per share of Class A Common Stock - basic	$	1.29	$	0.68	$	3.52	$	1.54
Diluted:
Net income attributable to Class A Common Stock	$	245,477	$	119,364	$	662,099	$	267,053
Less: Dividends and net income allocated to participating securities	2,292		934		6,035		1,705
Net income, net of participating securities	$	243,185	$	118,430	$	656,064	$	265,348
Weighted average number of common shares outstanding during the period - basic	188,635		174,764		186,475		172,281
Add: Dilutive effect of stock based compensation and other	439		919		492		999
Weighted average number of common shares outstanding during the period - diluted	189,074		175,683		186,967		173,280
Net income per share of Class A Common Stock - diluted	$	1.29	$	0.67	$	3.51	$	1.53

For the three months ended September 30, 2022 and 2021, the Company excluded 28.7 million and 60.4 million, respectively, of weighted average shares of Class A Common Stock issuable upon the exchange of Class B Common Stock (and corresponding Magnolia LLC Units) as the effect was anti-dilutive. For the nine months ended September 30, 2022 and 2021, the Company excluded 35.5 million and 68.8 million, respectively, weighted average shares of Class A Common Stock issuable upon the exchange of Class B Common Stock (and corresponding Magnolia LLC Units), as the effect was anti-dilutive.

14. Related Party Transactions

As of September 30, 2022, no entity held more than 10% of the Company’s common stock or qualified as a principal owner of the Company, as defined in ASC 850, “Related Party Disclosures.”

15. Subsequent Events

On October 27, 2022, the Company’s board of directors declared a quarterly cash dividend of $0.10 per share of Class A Common Stock, and a cash distribution of $0.10 per Magnolia LLC Unit, payable on December 1, 2022 to shareholders or members of record, as applicable, as of November 7, 2022.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding the Company’s future financial position, business strategy, budgets, projected revenues, projected costs, and plans and objectives of management for future operations, are forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “could,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “plan,” “believe,” or “continue” or similar terminology. Although Magnolia believes that the expectations reflected in such forward-looking statements are reasonable, the Company can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company’s expectations include, but are not limited to, Magnolia’s assumptions about:

•the economic effects of the COVID-19 pandemic and actions taken by federal, state and local governments and other third parties in response to the pandemic;

•legislative, regulatory, or policy changes, including those following the change in presidential administrations;

•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, including impacts of actions taken by OPEC and other state-controlled oil companies;

•production and reserve levels;

•geopolitical and business conditions in key regions of the world;

•drilling risks;

•economic and competitive conditions;

•the availability of capital resources;

•capital expenditures and other contractual obligations;

•weather conditions;

•inflation rates;

•the availability of goods and services;

•cyber attacks;

•the 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.

All of Magnolia’s forward-looking information is subject to risks and uncertainties that could cause actual results to differ materially from the results expected. Although it is not possible to identify all factors, these risks and uncertainties include the risk factors and the timing of any of those risk factors identified in the reports that we have filed and may file with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the period ended December 31, 2021 (the “2021 Form 10-K”).

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s unaudited consolidated financial statements and the related notes thereto.

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Overview 

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 NGL reserves that operates in one reportable segment located in the United States. The Company’s oil and natural gas properties are located primarily in Karnes County and the Giddings area in South Texas, where the Company primarily targets the Eagle Ford Shale and the 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. The Company’s allocation of capital prioritizes reinvesting in its business to achieve moderate and predictable annual volume growth, balanced with returning capital to its shareholders through dividends and share repurchases.

Magnolia’s business model prioritizes free cash flow, financial stability, and prudent capital allocation. The Company’s ongoing plan is to spend within cash flow on drilling and completing wells while maintaining low leverage. As of September 30, 2022, Magnolia operated two rigs. The Company’s gradual and measured approach toward both the appraisal and development of the Giddings area has created operating efficiencies leading to higher production growth this year.

COVID-19 Pandemic and Market Conditions Update

The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the oil and natural gas industry. As the global economy continues to recover from the effects of the COVID-19 pandemic, economic indicators have continued to strengthen. However, the economy has begun to experience elevated inflation levels as a result of global supply and demand imbalances. Inflationary pressures and labor shortages could result in further increases to our operating and capital costs.

Business Overview

As of September 30, 2022, Magnolia’s assets in South Texas included 43,327 gross (23,622 net) acres in the Karnes area, and 638,153 gross (448,263 net) acres in the Giddings area. As of September 30, 2022, Magnolia held an interest in approximately 2,096 gross (1,336 net) wells, with total production of 81.5 thousand and 75.9 thousand barrels of oil equivalent per day for the three and nine months ended September 30, 2022, respectively. During the third quarter of 2022, Magnolia was running a two-rig program.

Magnolia recognized net income attributable to Class A Common Stock of $245.5 million and $662.1 million, or $1.29 and $3.51 per diluted common share, for the three and nine months ended September 30, 2022, respectively. Magnolia recognized net income of $287.0 million and $795.5 million, which includes a noncontrolling interest of $41.5 million and $133.4 million related to the Magnolia LLC Units (and corresponding shares of Class B Common Stock) held by certain affiliates of EnerVest, for the three and nine months ended September 30, 2022, respectively.

During the nine months ended September 30, 2022, the Company declared cash dividends to holders of its Class A Common Stock totaling $56.4 million.

The Company’s board of directors has authorized a share repurchase program of up to 30.0 million shares. The program does not require purchases to be made within a particular time frame. As of September 30, 2022, the Company had repurchased 20.7 million shares under the program at a cost of $308.6 million and had 9.3 million shares of Class A Common Stock remaining under its current repurchase authorization. During the nine months ended September 30, 2022, the Company also repurchased 0.6 million shares of Class A Common Stock for $11.6 million from EnerVest Energy Institutional Fund XIV-C, L.P. outside of the share repurchase program.

During the nine months ended September 30, 2022, Magnolia LLC repurchased and subsequently canceled 5.9 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock for $138.8 million of cash consideration (the “Class B Common Stock Repurchases”). Magnolia funded the Class B Common Stock Repurchases with cash on hand. During the same period, the Magnolia LLC Unit Holders redeemed 14.6 million Magnolia LLC Units (and a corresponding number of shares of Class B Common Stock) for an equivalent number of shares of Class A Common Stock and subsequently sold these shares to the public. Magnolia did not receive any proceeds from the sale of shares of Class A Common Stock by the Magnolia LLC Unit Holders. As of September 30, 2022, Magnolia owned approximately 86.7% of the interest in Magnolia LLC and the noncontrolling interest was approximately 13.3%.

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Results of Operations

Factors Affecting the Comparability of the Historical Financial Results

Magnolia’s historical financial condition and results of operations for the periods presented may not be comparable, either from period to period or going forward, as a result of the following factors:

•On February 16, 2022, Magnolia Operating, as borrower, amended and restated the RBL Facility (“Amended and Restated RBL Facility”) in its entirety, which will now mature in February 2026.

•During the second quarter of 2021, the Company amended the term of the Services Agreement to end on June 30, 2021.

•During the second quarter of 2021, the Company amended the Non-Compete (the “Second Non-Compete Amendment”), which modified the term of the Non-Compete to end on June 30, 2021.

•The 2026 Senior Notes issued under the Indenture, dated as of July 31, 2018, were amended on April 5, 2021. This debt modification included approximately $1.1 million of one-time transaction fees which were expensed and $5.0 million in fees paid to holders of the 2026 Senior Notes, which were reflected as deferred financing costs reducing Long-term debt and will be amortized over the remaining term of the 2026 Senior Notes.

As a result of the factors listed above, the historical results of operations and period-to-period comparisons of these results and certain financial data may not be comparable or indicative of future results.

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Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

Oil, Natural Gas and NGL Sales Revenues. The following table provides the components of Magnolia’s revenues for the periods indicated, as well as each period’s respective average prices and production volumes. This table shows production on a boe basis in which natural gas is converted to an equivalent barrel of oil based on a ratio of six Mcf to one barrel. This ratio may not be reflective of the current price ratio between the two products.

	Three Months Ended
(In thousands, except per unit data)	September 30, 2022		September 30, 2021
Production:
Oil (MBbls)	3,381		2,851
Natural gas (MMcf)	13,364		11,429
NGLs (MBbls)	1,892		1,444
Total (Mboe)	7,500		6,200
Average daily production:
Oil (Bbls/d)	36,751		30,989
Natural gas (Mcf/d)	145,257		124,224
NGLs (Bbls/d)	20,568		15,692
Total (boe/d)	81,529		67,385
Revenues:
Oil revenues	$	317,243	$	195,642
Natural gas revenues	100,124		43,781
Natural gas liquids revenues	65,596		45,619
Total revenues	$	482,963	$	285,042
Average Price:
Oil (per barrel)	$	93.83	$	68.62
Natural gas (per Mcf)	7.49		3.83
NGLs (per barrel)	34.66		31.60

Oil revenues were 66% and 69% of the Company’s total revenues for the three months ended September 30, 2022 and 2021, respectively. Oil production was 45% and 46% of total production volume for the three months ended September 30, 2022 and 2021, respectively. Oil revenues for the three months ended September 30, 2022 were $121.6 million higher than for the three months ended September 30, 2021. A 37% increase in average prices increased third quarter 2022 revenues by $71.9 million compared to the same period in the prior year, while a 19% increase in oil production increased revenues by $49.7 million.

Natural gas revenues were 20% and 15% of the Company’s total revenues for the three months ended September 30, 2022 and 2021, respectively. Natural gas production was 30% and 31% of total production volume for the three months ended September 30, 2022 and 2021, respectively. Natural gas revenues for the three months ended September 30, 2022 were $56.3 million higher than the three months ended September 30, 2021. A 96% increase in average prices increased third quarter 2022 revenues by $41.8 million compared to the same period in the prior year, while a 17% increase in natural gas production increased revenues by $14.5 million.

NGL revenues were 14% and 16% of the Company’s total revenues for the three months ended September 30, 2022 and 2021, respectively. NGL production was 25% and 23% of total production volume for the three months ended September 30, 2022 and 2021, respectively. NGL revenues for the three months ended September 30, 2022 were $20.0 million higher than the three months ended September 30, 2021. A 10% increase in average prices increased third quarter 2022 revenues by $4.4 million compared to the same period in the prior year, while a 31% increase in NGL production increased revenues by $15.6 million.

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Operating Expenses and Other Income (Expense). The following table summarizes the Company’s operating expenses and other income (expense) for the periods indicated.

	Three Months Ended
(In thousands, except per unit data)	September 30, 2022		September 30, 2021
Operating Expenses:
Lease operating expenses	$	34,709	$	23,593
Gathering, transportation and processing	19,297		11,540
Taxes other than income	26,623		14,082
Exploration expenses	1,173		317
Asset retirement obligations accretion	814		1,329
Depreciation, depletion and amortization	68,972		47,993
General and administrative expenses	19,625		14,695
Total operating expenses	$	171,213	$	113,549
Other Income (Expense):
Interest expense, net	$	(5,263)	$	(7,474)
Loss on derivatives, net	—		(623)
Other income (expense), net	(166)		142
Total other expense, net	$	(5,429)	$	(7,955)
Average Operating Costs per boe:
Lease operating expenses	$	4.63	$	3.81
Gathering, transportation and processing	2.57		1.86
Taxes other than income	3.55		2.27
Exploration expenses	0.16		0.05
Asset retirement obligations accretion	0.11		0.21
Depreciation, depletion and amortization	9.20		7.74
General and administrative expenses	2.62		2.37

Lease operating expenses are costs incurred in the operation of producing properties, including expenses for utilities, direct labor, water disposal, workover rigs, workover expenses, materials, and supplies. Lease operating expenses for the three months ended September 30, 2022 were $11.1 million, or $0.82 per boe, higher compared to the corresponding 2021 period, due to an increase in costs including operating and maintenance costs, workover activities and additional non-operated activities.

Gathering, transportation and processing costs are costs incurred to deliver oil, natural gas, and NGLs to the market. These expenses can vary based on the volume of oil, natural gas, and NGLs produced as well as the cost of commodity processing. The gathering, transportation and processing costs for the three months ended September 30, 2022 were $7.8 million, or $0.71 per boe, higher than the three months ended September 30, 2021, primarily due to increased natural gas production and higher prices.

Taxes other than income include production and ad valorem taxes. These taxes are based on rates primarily established by state and local taxing authorities. Production taxes are based on the market value of production. Ad valorem taxes are based on the fair market value of the mineral interests or business assets. Taxes other than income for the three months ended September 30, 2022 were $12.5 million, or $1.28 per boe, higher compared to the three months ended September 30, 2021, primarily due to an increase in oil, natural gas, and NGL revenues.

Depreciation, depletion and amortization (“DD&A”) during the three months ended September 30, 2022 was $21.0 million, or $1.46 per boe, higher than the three months ended September 30, 2021 due to increased production and a higher depreciable cost basis.

General and administrative expenses during the three months ended September 30, 2022 were $4.9 million, or $0.25 per boe, higher than the three months ended September 30, 2021, primarily driven by higher corporate payroll expenses related to increased employee headcount and professional service fees.

21

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

Oil, Natural Gas and NGL Sales Revenues. The following table provides the components of Magnolia’s revenues for the periods indicated, as well as each period’s respective average prices and production volumes. This table shows production on a boe basis in which natural gas is converted to an equivalent barrel of oil based on a ratio of six Mcf to one barrel. This ratio may not be reflective of the current price ratio between the two products.

	Nine Months Ended
(In thousands, except per unit data)	September 30, 2022		September 30, 2021
Production:
Oil (MBbls)	9,216		8,346
Natural gas (MMcf)	38,205		31,617
NGLs (MBbls)	5,134		4,097
Total (Mboe)	20,718		17,713
Average daily production:
Oil (Bbls/d)	33,760		30,573
Natural gas (Mcf/d)	139,947		115,812
NGLs (Bbls/d)	18,806		15,008
Total (boe/d)	75,890		64,883
Revenues:
Oil revenues	$	912,702	$	531,300
Natural gas revenues	242,049		112,758
Natural gas liquids revenues	190,700		102,140
Total revenues	$	1,345,451	$	746,198
Average Price:
Oil (per barrel)	$	99.03	$	63.66
Natural gas (per Mcf)	6.34		3.57
NGLs (per barrel)	37.14		24.93

Oil revenues were 68% and 71% of the Company’s total revenues for the nine months ended September 30, 2022 and 2021, respectively. Oil production was 44% and 47% of total production volume for the nine months ended September 30, 2022 and 2021, respectively. Oil revenues for the nine months ended September 30, 2022 were $381.4 million higher than the nine months ended September 30, 2021. A 56% increase in average prices increased revenues by $295.2 million during the nine months ended September 30, 2022 compared to the same period in the prior year, while a 10% increase in oil production increased revenues by $86.2 million.

Natural gas revenues were 18% and 15% of the Company’s total revenues for the nine months ended September 30, 2022 and 2021, respectively. Natural gas production was 31% and 30% of total production volume for the nine months ended September 30, 2022 and 2021, respectively. Natural gas revenues for the nine months ended September 30, 2022 were $129.3 million higher than the nine months ended September 30, 2021. A 78% increase in average prices increased revenues by $87.5 million during the nine months ended September 30, 2022 compared to the same period in the prior year, while a 21% increase in natural gas production increased revenues by $41.8 million.

NGL revenues were 14% of the Company’s total revenues for each of the nine months ended September 30, 2022 and 2021. NGL production was 25% and 23% of total production volume for the nine months ended September 30, 2022 and 2021, respectively. NGL revenues for the nine months ended September 30, 2022 were $88.6 million higher than the nine months ended September 30, 2021. A 49% increase in average prices increased revenues by $50.1 million during the nine months ended September 30, 2022 compared to the same period in the prior year, while a 25% increase in NGL production increased revenues by $38.5 million.

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Operating Expenses and Other Income (Expense). The following table summarizes the Company’s operating expenses and other income (expense) for the periods indicated.

	Nine Months Ended
(In thousands, except per unit data)	September 30, 2022		September 30, 2021
Operating Expenses:
Lease operating expenses	$	96,057	$	64,957
Gathering, transportation and processing	51,518		32,069
Taxes other than income	74,917		38,657
Exploration expenses	10,119		2,440
Asset retirement obligations accretion	2,404		4,065
Depreciation, depletion and amortization	179,331		134,268
Amortization of intangible assets	—		9,346
General and administrative expenses	55,226		59,816
Total operating expenses	$	469,572	$	345,618
Other Income (Expense):
Interest expense, net	$	(21,637)	$	(23,519)
Loss on derivatives, net	—		(3,110)
Other income, net	6,579		48
Total other expense, net	$	(15,058)	$	(26,581)
Average Operating Costs per boe:
Lease operating expenses	$	4.64	$	3.67
Gathering, transportation and processing	2.49		1.81
Taxes other than income	3.62		2.18
Exploration expenses	0.49		0.14
Asset retirement obligations accretion	0.12		0.23
Depreciation, depletion and amortization	8.66		7.58
Amortization of intangible assets	—		0.53
General and administrative expenses	2.67		3.38

Lease operating expenses for the nine months ended September 30, 2022 were $31.1 million, or $0.97 per boe, higher compared to the corresponding 2021 period, due to an increase in costs including operating and maintenance costs, workover activities, and additional non-operated activities.

The gathering, transportation and processing costs for the nine months ended September 30, 2022 were $19.4 million, or $0.68 per boe, higher than the nine months ended September 30, 2021, primarily due to increased natural gas production and higher prices.

Taxes other than income for the nine months ended September 30, 2022 were $36.3 million, or $1.44 per boe, higher compared to the nine months ended September 30, 2021, primarily due to an increase in oil, natural gas, and NGL revenues.

The exploration expenses for the nine months ended September 30, 2022 were $7.7 million, or $0.35 per boe, higher than the nine months ended September 30, 2021, due to the purchase of seismic licenses and increased seismic surveying costs.

DD&A during the nine months ended September 30, 2022 was $45.1 million, or $1.08 per boe, higher than the nine months ended September 30, 2021 due to increased production and a higher depreciable cost basis.

For the nine months ended September 30, 2022, the Company did not recognize any amortization of intangible assets, because the intangible assets were fully amortized in June 2021 as a result of the termination of the Non-Compete. During the nine months ended September 30, 2021, the Company recognized $9.3 million of amortization of intangible assets.

General and administrative expenses during the nine months ended September 30, 2022 were $4.6 million, or $0.71 per boe, lower than the nine months ended September 30, 2021, primarily driven by the reduction in costs due to the termination of the

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Services Agreement on June 30, 2021, partially offset by higher corporate payroll expenses related to increased employee headcount and professional service fees.

Other income (expense), net, during the nine months ended September 30, 2022 was $6.6 million. This is primarily comprised of the receipt of an earnout payment in the second quarter of 2022 associated with the sale of the Company’s 35% membership interest in Ironwood Eagle Ford Midstream, LLC in 2020.

Liquidity and Capital Resources

Magnolia’s primary source of liquidity and capital has been its cash flows from operations. The Company’s primary uses of cash have been for development of the Company’s oil and natural gas properties, returning capital to shareholders, bolt-on acquisitions of oil and natural gas properties, and general working capital needs.

The Company may also utilize borrowings under other various financing sources available to it, including its Amended and Restated RBL Facility and the issuance of equity or debt securities through public offerings or private placements, to fund Magnolia’s acquisitions and long-term liquidity needs. Magnolia’s ability to complete future offerings of equity or debt securities and the timing of these offerings will depend upon various factors, including prevailing market conditions and the Company’s financial condition. The Company anticipates its current cash balance, cash flows from operations, and its available sources of liquidity to be sufficient to meet the Company’s cash requirements.

As of September 30, 2022, the Company had $400.0 million of principal debt related to the 2026 Senior Notes outstanding and no outstanding borrowings related to the Amended and Restated RBL Facility. As of September 30, 2022, the Company had $1,139.5 million of liquidity comprised of the $450.0 million of borrowing base capacity of the Amended and Restated RBL Facility, and $689.5 million of cash and cash equivalents.

Cash and Cash Equivalents

At September 30, 2022, Magnolia had $689.5 million of cash and cash equivalents. The Company’s cash and cash equivalents are maintained with various financial institutions in the United States. Deposits with these institutions may exceed the amount of insurance provided on such deposits. However, the Company regularly monitors the financial stability of such financial institutions and believes that the Company is not exposed to any significant default risk.

Sources and Uses of Cash and Cash Equivalents

The following table presents the sources and uses of the Company’s cash and cash equivalents for the periods presented:

	Nine Months Ended
(In thousands)	September 30, 2022		September 30, 2021
SOURCES OF CASH AND CASH EQUIVALENTS
Net cash provided by operating activities	$	1,028,685	$	527,935
USES OF CASH AND CASH EQUIVALENTS
Acquisitions	$	(11,749)	$	(10,817)
Additions to oil and natural gas properties	(323,510)		(162,744)
Changes in working capital associated with additions to oil and natural gas properties	14,152		12,435
Class A Common Stock repurchases	(153,138)		(70,316)
Class B Common Stock purchases and cancellations	(138,753)		(171,671)
Non-compete settlement	—		(42,074)
Dividends paid	(56,220)		(14,103)
Distributions to noncontrolling interest owners	(23,852)		(5,706)
Other	(13,058)		(10,477)
Net uses of cash and cash equivalents	(706,128)		(475,473)
NET CHANGE IN CASH AND CASH EQUIVALENTS	$	322,557	$	52,462

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Sources of Cash and Cash Equivalents

Net Cash Provided by Operating Activities

Operating cash flows are the Company’s primary source of liquidity and are impacted, in the short- and long-term, by oil and natural gas prices. The factors that determine operating cash flows are largely the same as those that affect net earnings, with the exception of certain non-cash expenses such as DD&A, stock based compensation, amortization of deferred financing costs, the non-cash portion of exploration expenses, and asset retirement obligations accretion.

Net cash provided by operating activities totaled $1,028.7 million and $527.9 million for the nine months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022, cash provided by operating activities was positively impacted by increased oil, natural gas, and NGL prices, partially offset by higher operating expenses and income tax payments.

Uses of Cash and Cash Equivalents

Acquisitions

The Company made individually insignificant bolt-on acquisitions during each of the nine months ended September 30, 2022 and 2021.

Additions to Oil and Natural Gas Properties

The following table sets forth the Company’s capital expenditures for the periods presented:

	Three Months Ended				Nine Months Ended
(In thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Drilling and completion	$	114,468	$	67,180	$	319,843	$	159,838
Leasehold acquisition costs	1,582		1,208		3,667		2,906
Total capital expenditures	$	116,050	$	68,388	$	323,510	$	162,744

During the third quarter of 2022, Magnolia was running a two-rig program. The number of operated drilling rigs is largely dependent on commodity prices and the Company’s strategy of maintaining spending to accommodate the Company’s business model.

Capital Requirements

The Company’s board of directors has authorized a share repurchase program of up to 30.0 million shares of Class A Common Stock. The program does not require purchases to be made within a particular time frame and whether the Company undertakes these additional repurchases is ultimately subject to numerous considerations, market conditions, and other factors. During the nine months ended September 30, 2022 and 2021, the Company repurchased 6.6 million and 6.0 million shares for a total cost of approximately $144.0 million and $73.8 million, respectively.

During the nine months ended September 30, 2022, the Company also repurchased 0.6 million shares of Class A Common Stock for $11.6 million from EnerVest Energy Institutional Fund XIV-C, L.P. outside of the share repurchase program.

During the nine months ended September 30, 2022 and 2021, Magnolia LLC repurchased and subsequently canceled 5.9 million and 13.0 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock for $138.8 million and $171.7 million of cash consideration, respectively. As of September 30, 2022, Magnolia owned approximately 86.7% of the interest in Magnolia LLC and the noncontrolling interest was approximately 13.3%.

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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 July 31, 2018 (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, as part of the Second Non-Compete Amendment, the Company paid $24.9 million in cash in lieu of delivering the remaining 1.6 million shares of Class A Common Stock.

During the nine months ended September 30, 2022, the Company declared cash dividends to holders of its Class A Common Stock totaling $56.4 million, of which $56.2 million was paid as of September 30, 2022. Additionally, $11.4 million was distributed to the Magnolia LLC Unit Holders. During the nine months ended September 30, 2021, the Company declared cash dividends to holders of its Class A Common Stock totaling $14.2 million, of which $14.1 million was paid as of September 30, 2021. Additionally, $4.8 million was distributed to the Magnolia LLC Unit Holders. The amount and frequency of future dividends is subject to the discretion of the Company’s board of directors and primarily depends on earnings, capital expenditures, debt covenants, and various other factors.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

For variable rate debt, interest rate changes generally do not affect the fair market value of such debt, but do impact future earnings and cash flows, assuming other factors are held constant. The Company is subject to market risk exposure related to changes in interest rates on borrowings under the Amended and Restated RBL Facility. Interest on borrowings under the Amended and Restated RBL Facility is based on the SOFR rate or alternative base rate plus an applicable margin. At September 30, 2022, the Company had no borrowings outstanding under the Amended and Restated RBL Facility.

Commodity Price Risk

Magnolia’s primary market risk exposure is to the prices it receives for its oil, natural gas, and NGL production. The prices the Company ultimately realizes for its oil, natural gas, and NGLs are based on a number of variables, including prevailing index prices attributable to the Company’s production and certain differentials to those index prices. Pricing for oil, natural gas, and NGLs has historically been volatile and unpredictable, and this volatility is expected to continue in the future. The prices the Company receives for production depend on factors outside of its control, including physical markets, supply and demand, financial markets, and national and international policies. A $1.00 per barrel increase (decrease) in the weighted average oil price for the nine months ended September 30, 2022 would have increased (decreased) the Company’s revenues by approximately $12.3 million on an annualized basis and a $0.10 per Mcf increase (decrease) in the weighted average natural gas price for the nine months ended September 30, 2022 would have increased (decreased) the Company’s revenues by approximately $5.1 million on an annualized basis.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, Magnolia has evaluated, under the supervision and with the participation of its management, including Magnolia’s principal executive and financial officer, the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2022. Based on such evaluation, Magnolia’s principal executive and financial officer has concluded that as of such date, the Company’s disclosure controls and procedures were effective. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by it in reports that it files under the Exchange Act is accumulated and communicated to management, including the Company’s principal executive and financial officer, as appropriate, to allow for timely decisions regarding required disclosure and is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC.

Changes in Internal Control over Financial Reporting

There were no changes in the system of internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

See Part I, Item 1, Note 9—Commitments and Contingencies to the consolidated financial statements, which is incorporated herein by reference.

From time to time, the Company is party to certain legal actions and claims arising in the ordinary course of business. While the outcome of these events cannot be predicted with certainty, management does not currently expect these matters to have a materially adverse effect on the financial position or results of operations of the Company.

Item 1A. Risk Factors

Please refer to Part I, Item 1A - Risk Factors of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (“2021 Form 10-K”), and Part I, Item 3 - Quantitative and Qualitative Disclosures About Market Risk of this Quarterly Report on Form 10-Q. Any of these factors could result in a significant or material adverse effect on Magnolia’s business, results of operations, or financial condition. There have been no material changes to the Company’s risk factors since its 2021 Form 10-K. Additional risk factors not presently known to the Company or that the Company currently deems immaterial may also impair its business, results of operations, or financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth the Company’s share repurchase activities for each period presented:

Period	Number of Shares of Class A Common Stock Purchased	Average Price Paid per Share		Total Number of Shares of Class A Common Stock Purchased as Part of Publicly Announced Program	Maximum Number of Shares of Class A Common Stock that May Yet Be Purchased Under the Program (1)
January 1, 2022 - March 31, 2022 (2)	2,050,815	$	21.85	1,500,000	14,332,455
April 1, 2022 - June 30, 2022	2,065,000	23.45		2,065,000	12,267,455
July 1, 2022 - July 31, 2022	1,616,497	19.98		1,616,497	10,650,958
August 1, 2022 - August 31, 2022	741,400	23.16		741,400	9,909,558
September 1, 2022 - September 30, 2022	642,103	20.10		642,103	9,267,455
Total	7,115,815	$	21.87	6,565,000	9,267,455

(1)The Company’s board of directors has authorized a share repurchase program of up to 30.0 million shares of Class A Common Stock. The program does not require purchases to be made within a particular time frame.

(2)The Company repurchased 0.6 million shares of Class A Common Stock for $11.6 million in a privately negotiated transaction with EnerVest Energy Institutional Fund XIV-C, L.P. outside of the share repurchase program.

During the nine months ended September 30, 2022, outside of the share repurchase program, Magnolia LLC repurchased and subsequently canceled a total of 5.9 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock for cash consideration of $138.8 million at an average price of $23.32 per share. There is no public market for the Class B Common Stock. For further detail, see Note 11—Stockholders’ Equity in the Notes to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q:

Exhibit Number	Description
3.1*	Second Amended and Restated Certificate of Incorporation of the Company, dated as of July 31, 2018 (incorporated herein by reference to Exhibit 3.1 filed with the Current Report on Form 8-K filed on August 6, 2018 (File No. 001-38083)).
3.2*	Bylaws of the Company (incorporated herein by reference to Exhibit 3.3 filed with the Registration Statement on Form S-1 filed on April 17, 2017 (File No. 333-217338)).
31.1**	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1***	Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.
104**	Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101).

*    Incorporated herein by reference as indicated.

**    Filed herewith.

***    Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MAGNOLIA OIL & GAS CORPORATION
Date: November 2, 2022	By:	/s/ Christopher Stavros
		Christopher Stavros
		Chief Executive Officer and Chief Financial Officer
		(Principal Executive Officer and Principal Financial Officer)

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