Magnolia Oil & Gas Corporation

11/05/2026 | Press release | Distributed by Public on 11/05/2026 15:02

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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:
•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;
•the timing and extent of the Company's success in discovering, developing, producing and estimating reserves;
•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;
•cybersecurity threats, including increased use of artificial intelligence technologies;
•the occurrence of property acquisitions or divestitures;
•the integration of the WildFire Acquisition, the results, effects and benefits of the WildFire Acquisition, future opportunities for the Company, other plans and expectations with respect to the WildFire Acquisition, and the anticipated impact of the WildFire Acquisition on the Company's results of operations, financial position, growth opportunities and competitive position; 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 this Quarterly Report on Form 10-Q and in the reports that the Company has 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, 2025 (the "2025 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.
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 the Karnes and Giddings areas 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 prudent and disciplined capital allocation, free cash flow, and financial stability. The Company's ongoing plan is to spend within cash flow on drilling and completing wells while maintaining low financial leverage. The Company's gradual and measured approach toward the development of the Giddings area has created operating efficiencies leading to higher production.
Market Conditions Update
Commodity prices continue to experience volatility driven by geopolitical conflict, evolving global supply-demand dynamics, and macroeconomic uncertainty. The ongoing military conflict involving Iran and instability in the Middle East have disrupted global energy markets and increased risks to regional energy infrastructure and maritime shipping routes, including the movement of global crude oil and refined product exports through key shipping corridors. These developments, together with the ongoing Russia-Ukraine conflict, OPEC and OPEC+ production decisions, and changes in sanctions and trade restrictions affecting major oil-producing countries such as Russia, Iran, and Venezuela, have contributed to significant uncertainty and volatility in global energy markets. Recent OPEC+ actions to increase production and unwind certain voluntary production cuts have added further uncertainty regarding future global supply levels and commodity prices.
The macroeconomic and geopolitical environment remains uncertain and continues to evolve. In addition to geopolitical risks, uncertainty surrounding global economic growth, energy demand, sanctions regimes, trade restrictions, and tariff policies may affect commodity prices, operating costs, and capital availability. The Company continues to closely monitor developments in
geopolitical conditions, international trade relations, tariff policies, and energy market dynamics, any of which could adversely affect operating results, financial condition, and future cash flows.
Business Overview
As of September 30, 2026, Magnolia's assets in South Texas included 45,522 gross (26,173 net) acres in the Karnes area, and approximately 1,554,461 gross (1,254,768 net) acres in the Giddings area. As of September 30, 2026, Magnolia held an interest in approximately 4,670 gross (3,696 net) wells, with total production of 117.3 thousand and 108.7 thousand barrels of oil equivalent per day for the three and nine months ended September 30, 2026, respectively.
Magnolia recognized net income attributable to Class A Common Stock of $80.5 million and $362.1 million, or $0.35 and $1.79 per diluted common share, for the three and nine months ended September 30, 2026, respectively. Magnolia recognized net income of $80.5 million for the three months ended September 30, 2026. Magnolia recognized net income of $363.1 million, which includes noncontrolling interest of $1.0 million related to the Magnolia LLC Units (and corresponding shares of Class B Common Stock) held by certain affiliates of EnerVest, Ltd., for the nine months ended September 30, 2026.
During the nine months ended September 30, 2026, the Company declared and paid cash dividends and distributions totaling $105.2 million.
As of September 30, 2026, the Company's board of directors had authorized a share repurchase program of up to 60.0 million shares of Class A Common Stock. The program does not require purchases to be made within a particular timeframe. The Company had repurchased 52.4 million shares under the program at a cost of $1.1 billion and had 7.6 million shares of Class A Common Stock remaining under its share repurchase authorization as of September 30, 2026. On November 2, 2026, the Company's board of directors increased the share repurchase authorization by an additional 15.0 million shares of Class A Common Stock, which increased the total share repurchase authorization to 75.0 million shares.
As of September 30, 2026, Magnolia owned 100.0% of the interest in Magnolia LLC.
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:
•In August 2026, Magnolia Operating and Magnolia Oil & Gas Finance Corp. issued $500.0 million of 6.625% Senior Notes due 2034.
•In September 2026, the Company completed the WildFire Acquisition for approximately $2.6 billion cash consideration, and the assumption of $600 million of WildFire's 7.500% Senior Notes due 2029.
•The Company amended and restated its revolving credit facility to increase its borrowing capacity from $450 million to $1.75 billion. In September 2026, the Company drew $535 million on the RBL Facility in association with the WildFire Acquisition.
•During the three months ended September 30, 2026, the Company entered into costless collar contracts to hedge a portion of its oil production and assumed derivative liabilities in connection with the WildFire Acquisition.
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.
Three and Nine Months Ended September 30, 2026 Compared to the Three and Nine Months Ended September 30, 2025
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 Nine Months Ended
(In thousands, except per unit data) September 30, 2026 September 30, 2025 September 30, 2026 September 30, 2025
Production:
Oil (MBbls) 4,516 3,628 11,985 10,784
Natural gas (MMcf) 19,425 17,515 55,009 50,828
NGLs (MBbls) 3,037 2,700 8,522 7,620
Total (Mboe) 10,790 9,247 29,675 26,875
Average daily production:
Oil (Bbls/d) 49,082 39,430 43,902 39,500
Natural gas (Mcf/d) 211,137 190,384 201,498 186,183
NGLs (Bbls/d) 33,015 29,347 31,215 27,912
Total (boe/d) 117,286 100,507 108,700 98,443
Production (% of total):
Oil 42 % 39 % 40 % 40 %
Natural gas 30 % 32 % 31 % 32 %
NGLs 28 % 29 % 29 % 28 %
Revenues:
Oil revenues $ 393,674 $ 230,530 $ 1,024,763 $ 702,409
Natural gas revenues 43,446 43,169 134,915 137,386
Natural gas liquids revenues 75,444 51,236 190,208 154,422
Other revenues 1,326 - 1,326 -
Total revenues $ 513,890 $ 324,935 $ 1,351,212 $ 994,217
Revenues (% of total):
Oil 77 % 71 % 76 % 70 %
Natural gas 8 % 13 % 10 % 14 %
NGLs 15 % 16 % 14 % 16 %
Other - % - % - % - %
Average Price:
Oil (per barrel) $ 87.18 $ 63.55 $ 85.50 $ 65.14
Natural gas (per Mcf) 2.24 2.46 2.45 2.70
NGLs (per barrel) 24.84 18.98 22.32 20.27
Oil revenues for the three months ended September 30, 2026 were $163.1 million higher than the three months ended September 30, 2025. A 37% increase in average prices increased third quarter 2026 revenues by $85.7 million compared to the same period in the prior year, and a 24% increase in oil production increased revenues by $77.4 million. Oil revenues for the nine months ended September 30, 2026 were $322.4 million higher than the nine months ended September 30, 2025. A 31% increase in average
prices increased revenues for the nine months ended September 30, 2026 by $219.7 million compared to the same period in the prior year, and an 11% increase in oil production increased revenues by $102.7 million.
Natural gas revenues for the three months ended September 30, 2026 were $0.3 million higher than the three months ended September 30, 2025. An 11% increase in natural gas production increased third quarter 2026 revenues by $4.3 million compared to the same period in the prior year, partially offset by a 9% decrease in average prices that decreased revenues by $4.0 million. Natural gas revenues for the nine months ended September 30, 2026 were $2.5 million lower than the nine months ended September 30, 2025. A 9% decrease in average prices decreased revenues for the nine months ended September 30, 2026 by $12.8 million compared to the same period in the prior year, partially offset by an 8% increase in natural gas production that increased revenues by $10.3 million.
NGL revenues for the three months ended September 30, 2026 were $24.2 million higher than the three months ended September 30, 2025. A 31% increase in average prices increased third quarter 2026 revenues by $15.8 million compared to the same period in the prior year, and a 12% increase in NGL production increased revenues by $8.4 million. NGL revenues for the nine months ended September 30, 2026 were $35.8 million higher than the nine months ended September 30, 2025. A 12% increase in NGL production increased revenues for the nine months ended September 30, 2026 by $20.1 million compared to the same period in the prior year, and a 10% increase in average prices increased revenues by $15.7 million.
Operating Expenses and Other Expense
The following table summarizes the Company's operating expenses and other expense for the periods indicated.
Three Months Ended Nine Months Ended
(In thousands, except per unit data) September 30, 2026 September 30, 2025 September 30, 2026 September 30, 2025
Operating Expenses:
Lease operating expenses $ 55,990 $ 48,553 $ 152,150 $ 139,218
Gathering, transportation and processing 19,598 17,744 55,008 49,186
Taxes other than income 24,889 20,383 64,033 59,291
Exploration expenses 13,725 131 15,679 841
Asset retirement obligations accretion 2,513 1,838 6,232 4,957
Depreciation, depletion and amortization 147,863 110,618 377,737 323,552
General and administrative expenses 25,345 24,204 85,941 72,072
Transaction and integration costs 68,743 - 71,943 -
Other operating expenses 625 - 625 -
Total operating expenses $ 359,291 $ 223,471 $ 829,348 $ 649,117
Other Expense:
Interest expense, net $ (8,542) $ (5,362) $ (21,266) $ (16,218)
Loss on derivatives, net (41,287) - (41,287) -
Other income (expense), net (505) (661) (920) 309
Total other expense, net $ (50,334) $ (6,023) $ (63,473) $ (15,909)
Average Operating Costs per boe:
Lease operating expenses $ 5.19 $ 5.25 $ 5.13 $ 5.18
Gathering, transportation and processing 1.82 1.92 1.85 1.83
Taxes other than income 2.31 2.20 2.16 2.21
Exploration expenses 1.27 0.01 0.53 0.03
Asset retirement obligations accretion 0.23 0.20 0.21 0.18
Depreciation, depletion and amortization 13.70 11.96 12.73 12.04
General and administrative expenses 2.35 2.62 2.90 2.68
Transaction and integration costs 6.37 - 2.42 -
Other operating expenses 0.06 - 0.02 -
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, 2026 were $7.4 million higher, and $0.06 per boe lower, than the three months ended September 30, 2025. Lease operating expenses for the nine months ended September 30, 2026 were $12.9 million higher, and $0.05 per boe lower, than the nine months ended September 30, 2025. The increase in both periods was due to a higher well count and additional activity from the WildFire Acquisition. Lease operating expenses per boe decreased due to higher production.
Gathering, transportation and processing ("GTP") 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 GTP costs for the three months ended September 30, 2026 were $1.9 million higher, and $0.10 per boe lower, than the three months ended September 30, 2025. The increase in GTP costs was driven by higher production volumes. The decrease on a per boe basis was primarily due to a higher proportion of oil production due to the WildFire Acquisition, which carries lower gathering and transportation costs than natural gas and NGLs. The GTP costs for the nine months ended September 30, 2026 were $5.8 million, or $0.02 per boe, higher, than the nine months ended September 30, 2025, primarily due to higher production volumes from the Company's development program in the Giddings area.
Taxes other than income include production, ad valorem, and franchise 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, 2026 were $4.5 million, or $0.11 per boe, higher than the three months ended September 30, 2025. Taxes other than income for the nine months ended September 30, 2026 were $4.7 million higher, and $0.05 per boe lower, than the nine months ended September 30, 2025. The increase in taxes other than income was primarily due to an increase in production taxes due to higher oil prices, partially offset by severance tax refunds and a decrease in ad valorem taxes as a result of lower market valuations.
Exploration expenses for the three months ended September 30, 2026 were $13.6 million, or $1.26 per boe, higher than the three months ended September 30, 2025. Exploration expenses for the nine months ended September 30, 2026 were $14.8 million, or $0.50 per boe, higher than the nine months ended September 30, 2025. The increase in exploration expenses was primarily due to the purchase of seismic licenses.
Depreciation, depletion and amortization ("DD&A") during the three months ended September 30, 2026 was $37.2 million, or $1.74 per boe, higher than the three months ended September 30, 2025. DD&A for the nine months ended September 30, 2026 was $54.2 million, or $0.69 per boe, higher than the nine months ended September 30, 2025. The increase in DD&A per boe was primarily due to a higher depletion rate resulting from the WildFire Acquisition, as the fair value of the acquired properties relative to their proved reserves exceeded the Company's historical depletion rate.
General and administrative expenses ("G&A") consists primarily of salaries and related benefits, stock based compensation, office rent, legal and consulting fees, system costs and other administrative costs incurred. The table below reflects the Company's G&A for the periods indicated:
Three Months Ended Nine Months Ended
(In thousands) September 30, 2026 September 30, 2025 September 30, 2026 September 30, 2025
General and administrative expenses $ 21,794 $ 17,739 $ 62,291 $ 53,286
Stock based compensation 3,551 6,465 23,650 18,786
Total general and administrative expenses $ 25,345 $ 24,204 $ 85,941 $ 72,072
G&A during the three months ended September 30, 2026 were $1.1 million higher, and $0.27 per boe lower, than the three months ended September 30, 2025 due to higher professional service fees, payroll costs, and rent expense, partially offset by reduced stock based compensation expense from the acceleration of vesting of certain awards in first half of 2026. G&A expenses during the nine months ended September 30, 2026 were $13.9 million, or $0.22 per boe, higher than the nine months ended September 30, 2025 due to increased professional service fees, payroll costs, and rent expense, and stock based compensation expense as a result of higher grant date fair values, accelerated vesting of certain awards, and changes in expected payouts for the Company's performance share unit awards.
Transaction and integration costs incurred during the three and nine months ended September 30, 2026 relate to the WildFire Acquisition. Transaction costs consist primarily of legal, advisory and other professional fees incurred in connection with the WildFire Acquisition. The integration costs are the incremental costs directly attributable to integrating the acquired operations, including consulting, system-conversion, employee severance and acquisition-related employee compensation and other transition-related costs.
Interest expense, net, during the three months ended September 30, 2026 was $3.2 million higher than the three months ended September 30, 2025. Interest expense, net, during the nine months ended September 30, 2026 was $5.0 million higher than the nine months ended September 30, 2025. The increase in interest expense, net, was primarily due to the issuance of additional debt,
including the 2034 Senior Notes, the assumption of the WildFire Senior Notes, and a draw on the RBL Facility, partially offset by higher interest income.
Loss on derivatives, net, was $41.3 million during the three and nine months ended September 30, 2026. There was no derivative activity in the corresponding 2025 periods. The derivative activity in 2026 was comprised of oil costless collars Magnolia entered into during the three months ended September 30, 2026, and derivative liabilities assumed as part of the WildFire Acquisition.
Income Tax Expense
The following table summarizes the Company's income tax expense for the periods indicated.
Three Months Ended Nine Months Ended
(In thousands) September 30, 2026 September 30, 2025 September 30, 2026 September 30, 2025
Current income tax benefit $ (15,663) $ (32,288) $ (9,234) $ (15,367)
Deferred income tax expense 39,453 49,496 104,538 78,650
Income tax expense $ 23,790 $ 17,208 $ 95,304 $ 63,283
For the three months ended September 30, 2026, income tax expense was $6.6 million higher than the three months ended September 30, 2025, driven by a $16.6 million decrease in current income tax benefit, offset by a $10.0 million decrease in deferred income tax expense. Income tax expense during the nine months ended September 30, 2026 was $32.0 million higher compared to the nine months ended September 30, 2025, driven by a $25.9 million increase in deferred income tax expense and a $6.1 million decrease in current income tax benefit. The increase in total tax expense was primarily due to an increase in income before income taxes. In 2026, additional depletion and bonus depreciation from the WildFire Acquisition lowered current tax expense and increased deferred tax expense. In 2025, the passage of the One Big Beautiful Bill Act accelerated deductions, which resulted in lower current tax expense and higher deferred tax expense. See Note 11- Income Taxes in the notes to the consolidated financial statements included in this Quarterly Report on Form 10-Q for further detail.
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 Magnolia, including the 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 and debt securities and the timing of these offerings will depend upon various factors, including prevailing market conditions and the Company's financial condition.
As of September 30, 2026, the Company had $1.9 billion of principal debt related to the Senior Notes outstanding and outstanding borrowings related to the RBL Facility. As of September 30, 2026, the Company had $1.3 billion of liquidity comprised of the $1.3 billion of available borrowing capacity under the RBL Facility, and $17.5 million of cash and cash equivalents.
Material Cash Requirements
The WildFire Acquisition and related financing transactions significantly increased the Company's material cash requirements. As of September 30, 2026, these included $1.9 billion of debt principal and approximately $105.6 million of annual interest on the Senior Notes, plus variable-rate interest on RBL Facility borrowings. The Company also expects to pay approximately $170.8 million over the next twelve months to settle commodity derivative contracts, based on forward prices as of September 30, 2026, which would be partially offset by higher realized prices on hedged production. The Company believes cash flows from operations and availability under the RBL Facility will be sufficient to fund these requirements, its capital program, and its dividends over the next twelve months and beyond.
Cash and Cash Equivalents
At September 30, 2026, Magnolia had $17.5 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 its 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, 2026 September 30, 2025
SOURCES OF CASH AND CASH EQUIVALENTS
Net cash provided by operating activities $ 950,621 $ 670,243
Issuance of common stock 1,225,617 -
Proceeds from revolving credit facility 535,000 -
Proceeds from issuance of long-term debt 500,000 -
Other investing activities 43,697 5,782
Net sources of cash and cash equivalents 3,254,935 676,025
USES OF CASH AND CASH EQUIVALENTS
Acquisitions $ (2,711,597) $ (64,359)
Additions to oil and natural gas properties (404,316) (350,503)
Changes in working capital associated with additions to oil and natural gas properties 13,658 8,437
Repayment of revolving credit facility (100,000) -
Class A Common Stock repurchases (142,802) (152,181)
Class B Common Stock purchases and cancellations (19,793) -
Dividends paid (104,300) (85,341)
Cash paid for debt issuance costs (23,605) -
Distributions to noncontrolling interest owners (911) (2,671)
Other financing activities (10,561) (8,971)
Net uses of cash and cash equivalents (3,504,227) (655,589)
NET CHANGE IN CASH AND CASH EQUIVALENTS $ (249,292) $ 20,436
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-term 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, asset retirement obligations accretion, and deferred taxes.
Net cash provided by operating activities totaled $950.6 million and $670.2 million for the nine months ended September 30, 2026 and 2025, respectively. During the nine months ended September 30, 2026, cash provided by operating activities primarily increased due to higher oil prices and increased production.
Debt and Equity Issuances
During the nine months ended September 30, 2026, the Company received $1.2 billion from the issuance of 53.3 million shares of Class A Common Stock, $535.0 million of proceeds from the RBL Facility, and $500.0 million of proceeds from the issuance of the 2034 Senior Notes. These funds were used to fund the WildFire Acquisition.
Other investing activities
During the nine months ended September 30, 2026 and 2025, the Company received $43.7 million and $5.8 million, respectively, primarily comprised of the sale of oil and natural gas properties.
Uses of Cash and Cash Equivalents
Acquisitions
In September 2026, the Company completed the WildFire Acquisition, which included $2.6 billion of cash consideration.
Additionally, the Company made individually insignificant bolt-on acquisitions totaling $156.3 million and $64.4 million during the nine months ended September 30, 2026 and 2025, respectively.
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, 2026 September 30, 2025 September 30, 2026 September 30, 2025
Drilling and completion $ 147,388 $ 118,441 $ 401,039 $ 344,128
Leasehold acquisition costs 3,371 607 3,277 6,375
Total capital expenditures $ 150,759 $ 119,048 $ 404,316 $ 350,503
During the third quarter of 2026, Magnolia operated two rigs until the WildFire Acquisition closed on September 10, 2026, after which, Magnolia operated four rigs. 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. The Company's ongoing plan is to continue to spend within cash flow on drilling and completing wells while maintaining low financial leverage.
Capital Requirements
As of September 30, 2026, the Company's board of directors had authorized a share repurchase program of up to 60.0 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, 2026 and 2025, the Company repurchased 5.3 million and 6.5 million shares for a total cost of approximately $141.6 million and $152.1 million, respectively.
During the nine months ended September 30, 2026, Magnolia LLC repurchased and subsequently canceled 0.7 million Magnolia LLC Units with an equal number of shares of corresponding Class B Common Stock for $19.8 million of cash consideration. As of September 30, 2026, Magnolia owned 100.0% of the interest in Magnolia LLC.
During the nine months ended September 30, 2026, the Company declared and paid cash dividends to holders of its Class A Common Stock totaling $104.3 million. Additionally, $0.9 million was distributed to the Magnolia LLC Unit Holders. During the nine months ended September 30, 2025, the Company declared and paid cash dividends to holders of its Class A Common Stock totaling $85.3 million. Additionally, $2.5 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.
Critical Accounting Policies and Estimates
As of September 30, 2026, the Company's critical accounting policies and estimates are consistent with those discussed in Critical Accounting Policies and Estimates within Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of its consolidated financial statements contained in the Company's 2025 Form 10-K, with the exception of Business Combinations as noted below.
Business Combinations
Accounting for the acquisition of a business requires the allocation of the purchase price to the various assets and liabilities of the acquired business and recording deferred taxes for any differences between the allocated values and tax basis of assets and liabilities. Any excess of the purchase price over the amounts assigned to assets and liabilities is recorded as goodwill.
The purchase price allocation is accomplished by recording each asset and liability at its estimated fair value. Estimated deferred taxes are based on available information concerning the tax basis of the acquired company's assets and liabilities and tax-related carryforwards at the acquisition date, although such estimates may change in the future as additional information becomes known. The amount of goodwill recorded in any particular business combination can vary significantly depending upon the values attributed to assets acquired and liabilities assumed relative to the total acquisition cost.
When estimating the fair values of assets acquired and liabilities assumed, the Company must apply various assumptions. The most significant assumptions relate to the estimated fair values assigned to proved and unproved crude oil and natural gas properties. Fair values of proved properties are estimated using an income approach based on discounted future net cash flows. Significant inputs include estimated reserve quantities and production profiles, forward commodity prices adjusted for location and quality differentials, future operating and development costs, and a market participant-based weighted average cost of capital, adjusted for risks associated with each reserve category. Unproved properties are valued using risk-weighted cash flows and, where available, comparable market transactions. These inputs are unobservable and represent Level 3 measurements. Because these assumptions are inherently uncertain, changes could materially affect the amounts allocated to oil and gas properties and goodwill, and therefore future depletion expense and impairment assessments.
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