EX-99.1 2 q32021pressrelease.htm EX-99.1 Document
Exhibit 99.1
Magnolia Oil & Gas Corporation Announces Third Quarter 2021 Results

HOUSTON, TX, November 1, 2021 - Magnolia Oil & Gas Corporation (“Magnolia,” “we,” “our,” or the “Company”) (NYSE: MGY) today announced its financial and operational results for the third quarter of 2021.

Third Quarter 2021 Highlights:
(In millions, except per share data)For the
Quarter Ended
September 30, 2021
Net income$159.9 
Earnings per share - diluted0.67 
Adjusted net income(1)
157.9 
Adjusted earnings per share(1)
0.67 
Adjusted EBITDAX(1)
221.5 
Capital expenditures - D&C67.2 
Cash balance as of September 30, 2021$245.0 
Average daily production (Mboe/d)67.4 
Diluted weighted average total shares outstanding(2)
236.0 

•Magnolia reported third quarter 2021 net income attributable to Class A Common Stock of $119.4 million, or $0.67 per diluted share. Third quarter 2021 total net income was $159.9 million and adjusted net income was $157.9 million, or $0.67 per diluted share.

•Adjusted EBITDAX for the third quarter of 2021 was $221.5 million, a 14% sequential quarterly increase driven by higher total production, stronger product prices, and lower overall operating costs and expenses. Total capital allocated to drilling and completions (“D&C”) during the third quarter was $67.2 million, or 30% of adjusted EBITDAX.

•Net cash provided by operating activities was $221.9 million during the third quarter and the Company generated free cash flow(1) of $143.5 million.

•During the third quarter of 2021, Magnolia generated operating income as a percent of total revenue of 60%.

•Total production in the third quarter of 2021 increased 4% sequentially to 67.4 thousand barrels of oil equivalent per day (“Mboe/d”) and was ahead of our earlier guidance. Quarterly production in Giddings saw an 80% increase compared to last year’s third quarter.

•Magnolia incurred $78.7 million repurchasing 5 million of its shares during the third quarter of 2021. Year to date, the company has repurchased 22.6 million shares(3) resulting in a 9% reduction in our fully diluted shares compared to the fourth quarter 2020 levels. We ended the third quarter with 8.5 million Class A Common shares remaining under the current share repurchase authorization.

•Magnolia had $245.0 million of cash on its balance sheet at the end of the third quarter, a nearly 30% sequential increase. The Company remains undrawn on its $450.0 million revolving credit facility, with no debt maturities until 2026 and has no plans to increase its debt levels.

•Magnolia paid its first interim semi-annual dividend of $0.08 on September 1, 2021 and plans to make the remaining semi-annual dividend payment in the first quarter of 2022 after announcing full-year 2021 results.




(1) Adjusted net income, adjusted earnings per share, adjusted EBITDAX, and free cash flow are non-GAAP financial measures. For reconciliations to the most comparable GAAP measures, please see “Non-GAAP Financial Measures” at the end of this press release.
(2) Weighted average total shares outstanding include diluted weighted average shares of Class A Common Stock outstanding during the period and shares of Class B Common Stock, which are anti-dilutive in the calculation of weighted average number of common shares outstanding.
(3) Includes 3.6 million shares related to the non-compete agreement that were settled in cash in lieu of a Class A Common Stock issuance.


1

“Our strong third quarter financial results demonstrate the quality of our assets and the efficiency of our capital program. We continue to execute on our business model which prioritizes disciplined capital spending, moderate production growth, high pre-tax margins and with low levels of debt,” said Chairman, President and CEO Steve Chazen. “These principles, combined with a lower overall cost structure and unhedged production, allowed us to achieve several records during the quarter including EBITDAX, free cash flow, net income margin, and earnings per share.

“Total production volumes grew 4 percent sequentially during the third quarter as a result of continued strong well performance and despite investing only 30% of our EBITDAX on drilling and completing wells. The quality of our asset base is reflected in the overall growth in our production volumes, low reinvestment rates and finding costs, and high full cycle margins. While still in the early stages of development, the results of our Giddings drilling program have become more repeatable and increasingly predictable. We continue to improve our operating efficiencies by increasing the number of wells per pad, extending the average lateral length per well, and increasing the average drilling foot per day.

“Year to date we have generated more than $375 million of free cash flow, the majority of which has been used to opportunistically repurchase our own stock. We have repurchased 22.6 million shares, including 5 million shares during the third quarter, resulting in a 9-percent reduction in our fully diluted shares compared to fourth quarter 2020 levels. Our share repurchase efforts continue to enhance our per share metrics, and we expect to continue to repurchase at least 1 percent of our shares each quarter. We also made the first payment of our semi-annual dividend in the third quarter and plan to make the remaining dividend payment in the first quarter of 2022 after reporting our full-year 2021 results. Our share repurchase program and the payment of a secure, sustainable and growing dividend are important components of Magnolia’s total shareholder return proposition.”


Operational Update

Third quarter total company production averaged 67.4 Mboe/d, representing a 4% sequential increase from second quarter levels, and despite spending only 30% of adjusted EBITDAX on drilling and completing wells. During the third quarter of 2021, Giddings and Other production averaged 36.8 Mboe/d, an increase of 80% percent compared to year-ago levels. Production in the Karnes area averaged 30.6 Mboe/d during the third quarter of 2021, a sequential increase of 6%, driven by the completion of several DUCs.

Magnolia continues to operate two drilling rigs and plans to maintain this level through the remainder of the year. One rig will continue to drill multi-well development pads in our Giddings area. The second rig will drill a mix of wells in both the Karnes and Giddings areas, including appraisal wells in Giddings. At our Giddings development, Magnolia continues to see improved operating efficiencies while maintaining strong well productivity. The 2021 development plan to-date has averaged 4 wells per pad with an average lateral length of greater than 7,000 feet. This compares favorably to last year which averaged less than 3 wells per pad with an average lateral length of about 6,000 feet. More wells per pad combined with longer laterals have helped drive further efficiencies at Giddings.


Guidance

Looking at the fourth quarter of 2021, we expect our D&C capital outlays to be approximately $80 million. This is lower than the midpoint of our earlier guidance and primarily due to continued efficiencies from our Giddings development. Fourth quarter total production is estimated to be in the range of 68 to 70 Mboe/d. Oil price differentials are anticipated to be approximately a $3 per barrel discount to Magellan East Houston and Magnolia remains completely unhedged for both its oil and natural gas production. We expect our fourth quarter 2021 effective tax rate to be approximately 2 percent. The fully diluted share count for the fourth quarter of 2021 is expected to be approximately 232 million shares which is 9 percent lower than fourth quarter 2020 levels.


Quarterly Report on Form 10-Q

Magnolia's financial statements and related footnotes will be available in its Quarterly Report on Form 10-Q for the three months ended September 30, 2021, which is expected to be filed with the U.S. Securities and Exchange Commission (“SEC”) on November 2, 2021.






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Conference Call and Webcast

Magnolia will host an investor conference call on Tuesday, November 2, 2021 at 9:00 a.m. Central (10:00 a.m. Eastern) to discuss these operating and financial results. Interested parties may join the webcast by visiting Magnolia's website at www.magnoliaoilgas.com/investors/events-and-presentations and clicking on the webcast link or by dialing 1-844-701-1059. A replay of the webcast will be posted on Magnolia's website following completion of the call.


About Magnolia Oil & Gas Corporation

Magnolia (MGY) is a publicly traded oil and gas exploration and production company with operations primarily in South Texas in the core of the Eagle Ford Shale and Austin Chalk formations. Magnolia focuses on generating value for shareholders through steady production growth, strong pre-tax margins, and free cash flow. For more information, visit www.magnoliaoilgas.com.


Cautionary Note Regarding Forward-Looking Statements

The information in this press release 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. All statements, other than statements of present or historical fact included in this press release, regarding Magnolia’s strategy, future operations, financial position, estimated revenues, and losses, projected costs, prospects, plans and objectives of management are forward looking statements. When used in this press release, the words could, should, will, may, believe, anticipate, intend, estimate, expect, project, the negative of such terms and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. Except as otherwise required by applicable law, Magnolia disclaims any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this press release. Magnolia cautions you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of Magnolia, incident to the development, production, gathering and sale of oil, natural gas and natural gas liquids. In addition, Magnolia cautions you that the forward looking statements contained in this press release are subject to the following factors: (i) the length, scope and severity of the ongoing coronavirus disease 2019 (“COVID-19”) pandemic, including the effects of related public health concerns and the impact of continued actions taken by governmental authorities and other third parties in response to the pandemic and its impact on commodity prices as well as supply and demand considerations; (ii) the outcome of any legal proceedings that may be instituted against Magnolia; (iii) Magnolia’s ability to realize the anticipated benefits of its acquisitions, which may be affected by, among other things, competition and the ability of Magnolia to grow and manage growth profitably; (iv) changes in applicable laws or regulations; and (v) the possibility that Magnolia may be adversely affected by other economic, business, and/or competitive factors. Should one or more of the risks or uncertainties described in this press release occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements. Additional information concerning these and other factors that may impact the operations and projections discussed herein can be found in Magnolia’s filings with the SEC, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Magnolia’s SEC filings are available publicly on the SEC’s website at www.sec.gov.




Contacts for Magnolia Oil & Gas Corporation

Investors
Brian Corales
(713) 842-9036
bcorales@mgyoil.com

Media
Art Pike
(713) 842-9057
apike@mgyoil.com
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Magnolia Oil & Gas Corporation
Operating Highlights
 
For the Quarters Ended
For the Nine Months Ended
 September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Production:
Oil (MBbls)2,851 2,485 8,346 8,965 
Natural gas (MMcf)11,429 9,444 31,617 29,261 
Natural gas liquids (MBbls)1,444 937 4,097 3,213 
Total (Mboe)6,200 4,996 17,713 17,055 
Average daily production:
Oil (Bbls/d)30,989 27,016 30,573 32,718 
Natural gas (Mcf/d)124,224 102,653 115,812 106,790 
Natural gas liquids (Bbls/d)15,692 10,181 15,008 11,725 
Total (boe/d)67,385 54,306 64,883 62,241 
Revenues (in thousands):
Oil revenues$195,132 $95,677 $529,641 $311,153 
Natural gas revenues42,828 14,895 110,187 44,238 
Natural gas liquids revenues45,619 10,495 102,140 29,880 
Total Revenues$283,579 $121,067 $741,968 $385,271 
Average sales price:
Oil (per Bbl)$68.44 $38.50 $63.46 $34.71 
Natural gas (per Mcf)3.75 1.58 3.49 1.51 
Natural gas liquids (per Bbl)31.60 11.20 24.93 9.30 
Total (per boe)$45.74 $24.23 $41.89 $22.59 
NYMEX WTI (per Bbl)$70.55 $40.94 $64.85 $38.30 
NYMEX Henry Hub (per Mcf)$4.01 $1.97 $3.19 $1.88 
Realization to benchmark:
Oil (% of WTI)97 %94 %98 %91 %
Natural Gas (% of Henry Hub)94 %80 %109 %80 %
Operating expenses (in thousands):
Lease operating expenses$23,593 $18,802 $64,957 $61,275 
Gathering, transportation and processing10,077 5,771 27,839 20,579 
Taxes other than income14,082 7,331 38,657 22,874 
Depreciation, depletion and amortization47,993 44,731 134,268 238,273 
Operating costs per boe:
Lease operating expenses$3.81 $3.76 $3.67 $3.59 
Gathering, transportation and processing1.63 1.16 1.57 1.21 
Taxes other than income2.27 1.47 2.18 1.34 
Depreciation, depletion and amortization7.74 8.95 7.58 13.97 
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Magnolia Oil & Gas Corporation
Consolidated Statements of Operations
(In thousands, except per share data)
For the Quarters Ended
For the Nine Months Ended
 September 30, 2021September 30, 2020September 30, 2021September 30, 2020
REVENUES 
Oil revenues$195,132 $95,677 $529,641 $311,153 
Natural gas revenues42,828 14,895 110,187 44,238 
Natural gas liquids revenues45,619 10,495 102,140 29,880 
Total revenues283,579 121,067 741,968 385,271 
OPERATING EXPENSES
Lease operating expenses23,593 18,802 64,957 61,275 
Gathering, transportation and processing10,077 5,771 27,839 20,579 
Taxes other than income14,082 7,331 38,657 22,874 
Exploration expense317 701 2,440 563,589 
Impairment of oil and natural gas properties— — — 1,381,258 
Asset retirement obligations accretion1,329 1,501 4,065 4,403 
Depreciation, depletion and amortization47,993 44,731 134,268 238,273 
Amortization of intangible assets— 3,626 9,346 10,879 
General and administrative expenses14,695 16,663 59,816 50,472 
Total operating expenses112,086 99,126 341,388 2,353,602 
OPERATING INCOME (LOSS)171,493 21,941 400,580 (1,968,331)
OTHER INCOME (EXPENSE)
Income from equity method investee— 1,007 — 2,059 
Interest expense, net(7,474)(7,333)(23,519)(21,345)
Loss on derivatives, net(623)(2,208)(3,110)(2,208)
Other income (expense), net142 (51)48 (510)
Total other expense, net(7,955)(8,585)(26,581)(22,004)
INCOME (LOSS) BEFORE INCOME TAXES163,538 13,356 373,999 (1,990,335)
Income tax expense (benefit)3,631 (339)6,428 (79,340)
NET INCOME (LOSS)159,907 13,695 367,571 (1,910,995)
LESS: Net income (loss) attributable to noncontrolling interest40,543 4,548 100,518 (674,860)
NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON STOCK119,364 9,147 267,053 (1,236,135)
NET INCOME (LOSS) PER COMMON SHARE
Basic$0.68 $0.05 $1.54 $(7.41)
Diluted$0.67 $0.05 $1.53 $(7.41)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic174,764 166,467 172,281 166,728 
Diluted175,683 170,676 173,280 166,728 
WEIGHTED AVERAGE NUMBER OF CLASS B SHARES OUTSTANDING (1)
60,358 85,790 68,827 85,790 
(1) Shares of Class B Common Stock, and corresponding Magnolia LLC Units, are anti-dilutive in the calculation of weighted average number of common shares outstanding.
5

Magnolia Oil & Gas Corporation
Summary Cash Flow Data
(In thousands)
For the Quarters EndedFor the Nine Months Ended
September 30, 2021September 30, 2020September 30, 2021September 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME (LOSS)$159,907 $13,695 $367,571 $(1,910,995)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization47,993 44,731 134,268 238,273 
Amortization of intangible assets— 3,626 9,346 10,879 
Exploration expense, non-cash— — — 561,629 
Impairment of oil and natural gas properties— — — 1,381,258 
Asset retirement obligations accretion1,329 1,501 4,065 4,403 
Amortization of deferred financing costs1,131 913 3,149 2,710 
Unrealized (gain) loss on derivatives, net(2,043)2,208 277 2,208 
Deferred tax expense (benefit)— — — (77,834)
Stock based compensation2,910 2,927 9,143 8,871 
Other— (1,007)(85)(2,059)
Net change in operating assets and liabilities10,677 (3,438)201 11,656 
Net cash provided by operating activities221,904 65,156 527,935 230,999 
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions(1,408)(3,920)(10,817)(73,702)
Additions to oil and natural gas properties(68,388)(27,674)(162,744)(157,325)
Changes in working capital associated with additions to oil and natural gas properties621 5,409 12,435 (18,972)
Other investing(1,661)(496)(2,316)(842)
Net cash used in investing activities(70,836)(26,681)(163,442)(250,841)
CASH FLOW FROM FINANCING ACTIVITIES
Class A Common Stock repurchases(25,988)(6,479)(70,316)(12,962)
Class B Common Stock purchase and cancellation(49,140)— (171,671)— 
Non-compete settlement— — (42,074)— 
Dividends paid(14,103)— (14,103)— 
Cash paid for debt modification— — (4,976)— 
Distributions to noncontrolling interest owners(5,276)(104)(5,706)(594)
Other financing activities(1,820)(209)(3,185)(702)
Net cash used in financing activities(96,327)(6,792)(312,031)(14,258)
NET CHANGE IN CASH AND CASH EQUIVALENTS54,741 31,683 52,462 (34,100)
Cash and cash equivalents – Beginning of period190,282 116,850 192,561 182,633 
Cash and cash equivalents – End of period$245,023 $148,533 $245,023 $148,533 

6


Magnolia Oil & Gas Corporation
Summary Balance Sheet Data
(In thousands)
September 30, 2021December 31, 2020
Cash and cash equivalents$245,023 $192,561 
Other current assets131,730 88,965 
Property, plant and equipment, net1,195,875 1,149,527 
Other assets13,151 22,367 
Total assets$1,585,779 $1,453,420 
Current liabilities$190,685 $128,949 
Long-term debt, net387,537 391,115 
Other long-term liabilities102,040 93,934 
Common stock24 26 
Additional paid in capital1,665,805 1,712,544 
Treasury stock(112,796)(38,958)
Retained earnings (accumulated deficit)(858,397)(1,125,450)
Noncontrolling interest210,881 291,260 
Total liabilities and equity$1,585,779 $1,453,420 


7

Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures


Reconciliation of net income to adjusted EBITDAX

In this press release, we refer to adjusted EBITDAX, a supplemental non-GAAP financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders, and rating agencies. We define adjusted EBITDAX as net income before interest expense, income taxes, depreciation, depletion and amortization, amortization of intangible assets, exploration costs, and accretion of asset retirement obligations, adjusted to exclude the effect of certain items included in net income. Adjusted EBITDAX is not a measure of net income in accordance with GAAP.

Our management believes that adjusted EBITDAX is useful because it allows them to more effectively evaluate our operating performance and compare the results of our operations from period to period and against our peers without regard to our financing methods or capital structure. We also believe that securities analysts, investors, and other interested parties may use adjusted EBITDAX in the evaluation of our Company. We exclude the items listed above from net income in arriving at adjusted EBITDAX because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDAX should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as an indicator of our operating performance or liquidity. Certain items excluded from adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of adjusted EBITDAX. Our presentation of adjusted EBITDAX should not be construed as an inference that our results will be unaffected by unusual or non-recurring items. Our computations of adjusted EBITDAX may not be comparable to other similarly titled measures of other companies.

The following table presents a reconciliation of net income to adjusted EBITDAX, our most directly comparable financial measure, calculated and presented in accordance with GAAP:
For the Quarters Ended
(In thousands)
September 30, 2021
September 30, 2020
NET INCOME$159,907 $13,695 
Exploration expense317 701 
Asset retirement obligations accretion1,329 1,501 
Depreciation, depletion and amortization47,993 44,731 
Amortization of intangible assets— 3,626 
Interest expense, net7,474 7,333 
Income tax expense (benefit)3,631 (339)
EBITDAX220,651 71,248 
Non-cash stock based compensation expense2,910 2,927 
Unrealized (gain) loss on derivatives, net(2,043)2,208 
Adjusted EBITDAX$221,518 $76,383 

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Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures

Reconciliation of net income attributable to Class A Common Stock to adjusted earnings

Our presentation of adjusted earnings and adjusted earnings per share are non-GAAP measures because they exclude the effect of certain items included in net income attributable to Class A Common Stock. Management uses adjusted earnings and adjusted earnings per share to evaluate our operating and financial performance because it eliminates the impact of certain items that management does not consider to be representative of the Company’s on-going business operations. As a performance measure, adjusted earnings may be useful to investors in facilitating comparisons to others in the Company’s industry because certain items can vary substantially in the oil and gas industry from company to company depending upon accounting methods, book value of assets, and capital structure, among other factors. Management believes excluding these items facilitates investors and analysts in evaluating and comparing the underlying operating and financial performance of our business from period to period by eliminating differences caused by the existence and timing of certain expense and income items that would not otherwise be apparent on a GAAP basis. However, our presentation of adjusted earnings and adjusted earnings per share may not be comparable to similar measures of other companies in our industry.

For the
Quarter Ended
September 30, 2021
Per Share Diluted EPS
For the
Quarter Ended
September 30, 2020
Per Share Diluted EPS
(In thousands, except per share data)
NET INCOME ATTRIBUTABLE TO CLASS A COMMON STOCK$119,364 $0.67 $9,147 $0.05 
Adjustments:
Unrealized (gain) loss on derivatives, net(2,043)— 2,208 0.01 
Noncontrolling interest impact of adjustments507 — (752)— 
Change in estimated income tax34 — — — 
ADJUSTED NET INCOME ATTRIBUTABLE TO
CLASS A COMMON STOCK		$117,862 $0.67 $10,603 $0.06 


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Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures

Reconciliation of net income to adjusted net income

Our presentation of adjusted net income is a non-GAAP measures because it excludes the effect of certain items included in net income and adjusts for income taxes assuming the exchange of all outstanding Magnolia LLC Units and corresponding Class B Common Stock for shares of Class A Common Stock. Management uses adjusted net income to evaluate our operating and financial performance because it eliminates the impact of certain items that management does not consider to be representative of the Company’s on-going business operations. As a performance measure, adjusted net income may be useful to investors in facilitating comparisons to others in the Company’s industry because certain items can vary substantially in the oil and gas industry from company to company depending upon accounting methods, book value of assets, and capital structure, among other factors. Management believes adjusting these items facilitates investors and analysts in evaluating and comparing the underlying operating and financial performance of our business from period to period by eliminating differences caused by the existence and timing of certain expense and income items that would not otherwise be apparent on a GAAP basis. However, our presentation of adjusted net income may not be comparable to similar measures of other companies in our industry.

For the Quarters Ended
(In thousands)
September 30, 2021
September 30, 2020
NET INCOME$159,907 $13,695 
Income tax expense (benefit)
3,631 (339)
INCOME BEFORE INCOME TAXES163,538 13,356 
Adjustments:
Unrealized (gain) loss on derivatives, net(2,043)2,208 
ADJUSTED INCOME BEFORE INCOME TAXES161,495 15,564 
Adjusted income tax expense3,586 — 
ADJUSTED NET INCOME$157,909 $15,564 
Diluted weighted average shares of Class A Common Stock outstanding during the period175,683 170,676 
Weighted average shares of Class B Common Stock outstanding during the period (1)
60,358 85,790 
Total weighted average shares of Class A and B Common Stock, including dilutive impact of other securities (1)
236,041 256,466 

(1) Shares of Class B Common Stock, and corresponding Magnolia LLC Units, are anti-dilutive in the calculation of weighted average number of common shares outstanding.
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Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures

Reconciliation of revenue to adjusted cash operating margin and to operating income margin

Our presentation of adjusted cash operating margin and total adjusted cash operating costs are supplemental non-GAAP financial measures that are used by management. Total adjusted cash operating costs exclude the impact of non-cash activity. We define adjusted cash operating margin per boe as total revenues per boe less operating expenses per boe. Management believes that total adjusted cash operating costs per boe and adjusted cash operating margin per boe provide relevant and useful information, which is used by our management in assessing the Company’s profitability and comparability of results to our peers.

As a performance measure, total adjusted cash operating costs and adjusted cash operating margin may be useful to investors in facilitating comparisons to others in the Company’s industry because certain items can vary substantially in the oil and gas industry from company to company depending upon accounting methods, book value of assets, and capital structure, among other factors. Management believes excluding these items facilitates investors and analysts in evaluating and comparing the underlying operating and financial performance of our business from period to period by eliminating differences caused by the existence and timing of certain expense and income items that would not otherwise be apparent on a GAAP basis. However, our presentation of adjusted cash operating margin may not be comparable to similar measures of other companies in our industry.

For the Quarters Ended
(in $/boe)September 30, 2021September 30, 2020
Revenue$45.74 $24.23 
Total cash operating costs:
Lease operating expenses (1)
(3.79)(3.76)
Gathering, transportation and processing(1.63)(1.16)
Taxes other than income(2.27)(1.47)
Exploration expense(0.05)(0.14)
General and administrative expenses (2)
(1.92)(2.75)
Total adjusted cash operating costs(9.66)(9.28)
Adjusted cash operating margin$36.08 $14.95 
Margin (%)79 %62 %
Non-cash costs:
Depreciation, depletion and amortization$(7.74)$(8.95)
Asset retirement obligations accretion(0.21)(0.30)
Amortization of intangible assets— (0.73)
Non-cash stock based compensation(0.47)(0.59)
Total non-cash costs(8.42)(10.57)
Operating income margin$27.66 $4.38 
Margin (%)60 %18 %

(1) Lease operating expenses exclude non-cash stock based compensation of $0.1 million, or $0.02 per boe, for the quarter ended September 30, 2021.
(2) General and administrative expenses exclude non-cash stock based compensation of $2.8 million, or $0.45 per boe, and $2.9 million, or $0.59 per boe, for the quarters ended September 30, 2021 and 2020, respectively.

11


Magnolia Oil & Gas Corporation
Non-GAAP Financial Measures

Reconciliation of net cash provided by operating activities to free cash flow

Free cash flow is a non-GAAP financial measure. Free cash flow is defined as cash flows from operations before net change in operating assets and liabilities less additions to oil and natural gas properties and changes in working capital associated with additions to oil and natural gas properties. Management believes free cash flow is useful for investors and widely accepted by those following the oil and gas industry as financial indicators of a company’s ability to generate cash to internally fund drilling and completion activities, fund acquisitions, and service debt. It is also used by research analysts to value and compare oil and gas exploration and production companies and are frequently included in published research when providing investment recommendations. Free cash flow, therefore, is an additional measure of liquidity, but is not a measure of financial performance under GAAP and should not be considered an alternative to cash flows from operating, investing, or financing activities.

For the Quarters EndedFor the Years Ended
(In thousands)September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Net cash provided by operating activities$221,904 $65,156 $527,935 $230,999 
Add back: net change in operating assets and liabilities(10,677)3,438 (201)(11,656)
Cash flows from operations before net change in operating assets and liabilities211,227 68,594 527,734 219,343 
Additions to oil and natural gas properties(68,388)(27,674)(162,744)(157,325)
Changes in working capital associated with additions to oil and natural gas properties621 5,409 12,435 (18,972)
Free cash flow$143,460 $46,329 $377,425 $43,046 
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