Management at Magnolia Oil and Gas Corp. said sticking to the South Texas-focused independent’s game plan resulted in an exceptional second quarter.

CEO Steve Chazen said Magnolia, in its fourth year as a publicly held exploration and production (E&P) company, operates on a tried-and-true business model.

“We have consistently executed our strategy, which prioritizes disciplined capital spending, moderate and steady production growth, generating high pre-tax margins and significant free cash flow, while maintaining low levels of debt,” he said.

[Shale Daily: Including impactful news and transparent pricing for shale and unconventional plays across the U.S. and Canada, Shale Daily offers a clear snapshot of natural gas supplies for analysts, investors and global LNG buyers. Learn more.]

That conservative approach enabled the Houston-based E&P to set “quarterly records for many of our key operating financial metrics” in 2Q2022, Magnolia’s CFO Christopher Stavros told analysts during the upstream firm’s latest earnings call.

Magnolia’s operations span Eagle Ford Shale and Austin Chalk formation acreage in the Giddings field and Karnes County.

Management anticipates no changes to the number of drilling rigs the E&P operates on the oily Giddings and Karnes assets.

“We are currently operating two drilling rigs and plan to continue at this level of activity through the end of this year and into next year,” said Stavros.

He said one rig would “continue to drill multi-well development pads” in Giddings. The second unit, meanwhile, would “drill a mix of wells in both Karnes and Giddings,” including Giddings appraisal wells, he added.

“We continue to improve our operating efficiencies in the Giddings field, which should help offset some of the oilfield service inflation,” said Stavros.

The effort would “also lead to some additional net wells during the year,” he said.

Total Production Up 14%

Total production for 2Q2022 averaged 74,200 boe/d, up year/year from 64,900 boe/d. Giddings accounted for 44,100 boe/d of 2Q2022 output, with the remaining 30,100 boe/d coming from Karnes County acreage.

Natural gas output averaged 137 MMcf/d in 2Q2022, compared to  109.3 MMcf/d in 2Q2021. Crude oil production averaged 33,178 b/d in 2Q2022, up year/year from 31,897 b/d. Average 2Q2022 natural gas liquids (NGL) production was 18,194 b/d, up year/year from 14,830 b/d. 

Magnolia’s average natural gas sales price was $6.85/Mcf in 2Q2022, compared to $3.35/Mcf in the year-ago period. Oil fetched $110.22/bbl, compared to $65.01/bbl in 2Q2021. NGL commanded an average 2Q2022 sales price of $40.17/bbl, up year/year from $22.26/bbl.

The E&P continues to be “completely unhedged for both our oil and gas production allowing us to fully capture the benefit of high product prices,” Stavros said.

“At current product prices our capital for drilling and completing wells should be well below our 55% spending cap, resulting in significant free cash flow generation,” said Chazen.

Revenues totaled $484.6 million in 2Q2022, compared to $252 million year/year.

Free cash flow was $250.8 million, up from about $134 million in 2Q2021.

Net income was $299.9 million ($1.32/share) for 2Q2022, compared to $116.2 million (48 cents) year/year. 

In terms of 3Q2022 guidance, management anticipates production ranging from 74,000-76,000 boe/d and $105-115 million in drilling and completion capital spending.