Magnolia Oil and Gas Corp. may be at the beginning of a year-long surge in production growth after a strong showing in the first three months of the year in the Eagle Ford Shale and Austin Chalk formation.

Magnolia

The Houston-based independent previously launched development programs for parts of its South Texas assets, including the Giddings field and in Karnes County. Management in reporting the 1Q2022 results show those efforts are at the tipping point of a significant pay-off.

CEO Steve Chazen said much of the first quarter’s success was from the Giddings, which has quickly grown from about one-third of total production to nearly 60%. More progress is expected, he said, as the company continues to develop the field.

“With Giddings still in relatively early stages of development, our operating team’s improved understanding and growing experience will allow us to increase the oil and gas recovery ability…,” Chazen said.

Magnolia reported 1Q2022 production at 6.5 million boe, up 15% from 5.6 million boe in the year-ago period. It was also a 3% sequential increase over the prior quarter. Average daily production for 1Q2022 was 71,835 boe/d, compared with 62,262 boe/d in 1Q2021.

Natural gas production in 1Q2022 was 12,378 MMcf, versus 10,240 MMcf in 1Q2021. Average daily gas production was nearly 138 MMcf/d from 114 MMcf/d in the previous year’s first quarter. 

Oil production averaged 2.8 million bbl in the quarter, up from 2.6 million bbl in the year-prior period. Average daily oil production was 31,289 b/d from 28,808 b/d.

Production was at the high end of guidance, attributed chiefly to the growth of its Giddings asset. The wells there produced 31% more oil during 1Q2022 than in the year-ago period.

Management forecast production would continue to rise through the rest of the year. For 2Q2022, production guidance was estimated at 72,000-74,000 boe/d. Magnolia raised its production growth guidance from the single digits to a 10% boost throughout 2022.  Giddings production could also grow by around 25% during the year.

Chazen said Magnolia was in a fortunate position, but the exploration and production industry in general was facing restrictions that may limit growth and keep commodity prices lofty.

“We have this environment, where even if you wanted to grow a lot, you couldn’t – you can’t get the supplies; you can’t get labor; you can’t get drills to the wells,” Chazen said.

While Magnolia touted success with cost containment, capitalizing on the success will require more capital expenditures. The company is raising its budget for drilling and completion by $50 million for the year to $400 million. Most of that added cost was attributed to drilling longer laterals in quicker time and rising costs for material and labor.

Magnolia’s average realized price for natural gas was $4.57/Mcf in 1Q2022, up from $3.48/Mcf in the year-prior period. The average realized price for oil was $93.28/bbl in 1Q2022 compared with $56.68/bbl in 1Q2021.

The company reported net income of $209 million (90 cents/share) for 1Q2022, up from $92 million (37 cents) in 1Q2021.