Magnolia Oil & Gas Corporation Class A Common Stock 0 Earnings Call

Good morning, everyone. Thank you for participating in the Magnolia Oil & Gas to acquire Wildfire Energy call. My name is Betsy. I will be your Moderator for today's call. At this time, all participants will be placed in a listen-only mode as our call is being recorded. I would now like to turn the call over to Magnolia's management for their prepared remarks, which will be followed by a brief question and answer session.

Thank you, Betsy. Good morning, everyone. Welcome to Magnolia Oil & Gas's acquisition of Wildfire Energy conference call. Participating on the call today are Chris Stavros, Magnolia's Chairman, President, and Chief Executive Officer, and Brian Corales, Senior Vice President and Chief Financial Officer. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. Additional information on risk factors that could cause the results to differ is available in the company's annual report on Form 10-K filed with the SEC. A full safe harbor can be found on slide 11 of the conference call presentation with the supplemental data on our website.

You can download the press release as well as the conference call slides from the investor section of the company's website at www.magnoliaoilgas.com. I will now turn the call over to Mr. Chris Stavros.

Thank you, Tommy. Good morning, everyone. Thank you all for joining us early this morning, as we're pleased to announce Magnolia's acquisition of Wildfire Energy. I plan to discuss some of the beneficial aspects of the acquisition, including some higher-level details. We'll be referring to the slide presentation that can be found on our website. To begin with, I wanted to provide you with a brief background on Magnolia's history around M&A and remind you of our acquisition strategy. M&A is not foreign to us, as we've looked at dozens of opportunities over the years and done more than $1 billion of transactions. Although these have primarily been small bolt-on deals, while the acquisition of Wildfire is much larger, we would still characterize this as a bolt-on transaction.

There is clear overlap with a natural strategic fit and industrial logic supporting this deal as the Wildfire acquisition more than doubles our existing acreage position in the Giddings field. Importantly, the acquisition is the culmination of our extensive subsurface experience, superior knowledge, and the demonstration of our proven resource capture in Giddings over the past eight years. When considering any M&A at Magnolia, our standards are high, and we always ask ourselves whether the transaction will make us better. We also look for opportunities that have similar attractive operational financial characteristics to our core assets and that can compete for capital with our existing assets. Finally, we target acquisitions that don't simply replace the oil and gas that has been produced but also improve the resource opportunity set for the overall business.

On these points, we believe that the Wildfire acquisition greatly enhances Magnolia's position by extending our runway of advantage to high return profitability and significant free cash flow generation and creating the premier Eagle Ford Austin Chalk operator with more than 1 million contiguous acres in South Texas. Starting on slide two in the presentation slides and noting some specific details of the transaction, we've agreed to acquire Wildfire Energy for approximately $4.06 billion to be funded with a balanced mix of cash and equity, including 32.2 million shares of Magnolia Class A common stock to be issued to the Wildfire owners, and we're also assuming Wildfire's $600 million of outstanding notes due in 2029. Magnolia intends to fund the remaining amount through a combination of cash on hand and a balanced mix of debt and new common equity.

Magnolia has obtained committed financing in connection with this transaction and has amended and increased the company's secured credit facility to a $2 billion borrowing base and with elected commitments of $1.75 billion contingent upon closing the transaction. The transaction effectively consolidates most of the Giddings field and area, adding roughly 810,000 net acres, resulting in a Magnolia pro forma acreage position of nearly 1.3 million net acres over one and a half million gross acres. Shown in the map on the right side of the slide, given the overlap, it should be clear that the Wildfire assets are a natural strategic fit for Magnolia. Helped by the combination of our deep technical understanding of Giddings and our strong balance sheet, this puts us in a unique position to opportunistically pursue a large and highly attractive asset in our own backyard.

This acquisition brings together two high-quality and complementary assets near Gulf Coast markets, which offer premium pricing for our products and enables us to extract annual cost savings and value-added synergies of at least $100 million by the end of next year. In addition, the transaction will benefit almost 70% of Magnolia's existing acreage through higher working interest, which is an unmatched level of overlapping position together with a significant amount of adjacent acreage. The Wildfire assets produced approximately 53,000 barrels of oil equivalent per day, including 37,000 barrels per day of oil production during the second quarter of 2026. Total combined Magnolia pro forma production for the second quarter was 159,000 barrels of oil equivalent per day, including 79,000 barrels of oil per day with an oil mix of about 50%.

A key advantage of WildFire's production is its low base decline rate, which we estimate to be approximately 29%. The transaction is expected to be highly accretive to all of Magnolia's key financial metrics, including cash flow and free cash flow per share, operating margins, earnings per share, and NAV. As a result of the sizable and expected increase in our free cash flow from the WildFire assets, we are raising our quarterly dividend by 9%. Magnolia's board of directors have unanimously approved the acquisition, and we anticipate closing to occur late in the third quarter of this year. Looking at slide three, one of the most important elements of the WildFire acquisition is that Magnolia's differentiated, proven, and highly investable business model remains unchanged.

Shown on the left side of this slide is our business model, our recipe, if you will, which is really the essence of what we're all about since our founding. This is largely an industrial type model, and we believe its application is critically important for increasing shareholder value. The acquisition of WildFire helps further support our business model with its low oil decline rate, low capital reinvestment rate, high cash margins, and the addition of significant high-quality resource opportunities. Maintaining conservative leverage has always been a key component of Magnolia's business model since our founding. Although our level of debt will initially increase to accommodate the acquisition, we view this as very manageable and more temporary, given the sizable amount of free cash flow generation expected from the pro forma business.

To minimize risk and provide us with greater financial flexibility and liquidity, our plan is to utilize most of our free cash flow generation in excess of the company's shareholder return program to immediately focus on swiftly and steadily reducing debt, in keeping with Magnolia's conservative financial policy. We fully expect to be at roughly 1 times or less our net debt to EBITDA by year-end 2027, pursuing further debt reduction over time, given our consistent free cash flow generation and as we capture additional synergies and capital efficiencies. Like our current plan, we expect to limit our D&C capital spending to less than 55% of our annual adjusted EBITDAX.

In combination with Magnolia's business, we expect WildFire's high-quality assets to help deliver moderate and mid-single-digit annual growth for both total production and our oil production on a pro forma basis, a rate of growth higher than most of our peers, and with high pre-tax operating margins. Going forward, we expect both our total BOE production and our oil production to see similar rates of mid-single-digit growth. We expect to consistently return a significant portion of our free cash flow to shareholders, including our safe, sustainable, and growing dividend, which I expect should grow over the long term at a compound rate of about 10%, and is an outcome of the business. And we will continue with our share repurchases of at least 1% of our outstanding shares per quarter. Shown on the right side of this slide are our capital allocation priorities.

While I would expect us to continue with very small bolt-on acquisitions that fill in some minor gaps in acreage or that add incremental working interest or royalties to existing leases, any large-scale M&A or acquisitions are currently off the table, and frankly, unnecessary. Slide four highlights much of what I've discussed with the WildFire acquisition improving on Magnolia's unique operating platform by creating the dominant Eagle Ford and Austin Chalk E&P company in South Texas through the combination of two high-quality, complementary, contiguous assets in the Giddings field. We believe our unmatched knowledge of Austin Chalk and Eagle Ford development will continue to add resource optionality and duration from one of the largest, most concentrated resource positions close to advantageous Gulf Coast markets. We expect the acquired assets to improve on our industry-leading reinvestment economics, extending our sustainable free cash flow generation and the return of capital to shareholders.

Moving on to slides five and six, I've often shied away from using banker buzzwords such as size and scale and transformational as justifiable reasons for pursuing larger M&A. I'll try to describe this transaction a bit differently. The WildFire acquisition is an ideal example of in-basin M&A with concentrated and high-quality acreage primarily focused in the Eagle Ford and Austin Chalk. On a pro forma basis, Magnolia's acreage position becomes the largest in South Texas Eagle Ford, Austin Chalk trend, and nearly 1.3 million net acres, and inclusive our Karnes County area assets. As slide five shows, Magnolia's position is almost 80% larger than the second-place operator, highlighting the extensive potential resource base created by the acquisition to both execute on the existing inventory and appraise future development opportunities.

Magnolia's acreage position is not only larger, but also deeper, with the acquisition adding another dimension of depth and upside development opportunities across multiple benches, including the Austin Chalk, Eagle Ford, and Woodbine across the acreage. Slide six not only highlights the creation of a dominant acreage position in the Giddings field, but also the substantial increase to Magnolia's oil production and proved developed reserve base. Our pro forma oil production increases by 89% to nearly 80,000 barrels per day, with our oil mix rising to 50% from roughly 40%. Our total proved developed reserves increases by 84% to more than 300 million barrels of oil equivalent, and our proved developed oil reserves increased by approximately 155%, with the overall mix of proved developed oil reserves climbing to roughly 54%.

Turning to slide seven, as I mentioned, given the large overlap with our assets, our own field operations experience in Giddings, and our extensive technical knowledge of the subsurface, we believe that Magnolia is uniquely able to extract significant synergies from the WildFire acquisition. We expect the annual cost savings and synergy capture to be at least $100 million on a run-rate basis by the end of 2027. We calculate the present value of these savings and efficiencies is approximately $700 million, and with these improvements captured in three buckets, including drilling completions of facilities, field operations, and corporate G&A. With the approximate allocation by category at 60%, 20%, 20% respectively. We anticipate seeing the earliest progress in the areas of corporate G&A and field operations, with savings here likely to be near the full run rate by mid-year 2027.

While the WildFire assets immediately improve Magnolia's D&C capital reinvestment rate, we expect to capture further D&C synergies and efficiencies under our development plan. Some of these additional benefits include a significant opportunity to extend the average lateral length of our wells, applying Magnolia's supply chain and logistics pricing to WildFire's historical practices, the sharing of facilities and infrastructure in the field, and the application of Magnolia's drilling and completion technology and expertise towards the future development of Giddings, a capability we have proven after eight years of successful operations. Another appreciated aspect of the acquisition is the embedded infrastructure within the assets and the added benefits these provide. The WildFire assets also include approximately 500 miles of gas gathering pipelines in Giddings, in addition to a local sand mine.

The sand mine is strategically important as it currently supplies all of Magnolia's Giddings and WildFire's frac sand consumption, in addition to third-party sales. This provides a significant benefit in the cost of the sand we use in our Giddings development. In addition, the overlapping and adjacent acreage positions are expected to reduce our operating expenses as we streamline our field operations. Taken together, these synergies represent some of the clear benefits of an in-basin acquisition with concentrated scale that are unique to Magnolia, helping to drive further value for shareholders. Lastly, to help seamlessly integrate the WildFire assets and operations, we've created an internal integration management office, an IMO, that will assist in our day one execution. We have also executed transition services agreement with WildFire to assist in the integration.

The overall goal of the IMO is to help plan and execute both pre and post-closing goals to minimize any potential hiccups along the way. This was a model that we successfully deployed and implemented after the separation from EnerVest, and we will plan to put it back into action for this acquisition. Looking at slide eight, we expect the WildFire acquisition to generate significant levels of free cash flow supported by the high-quality assets, our disciplined capital program delivering moderate annual production growth, combined with meaningful cost savings and operational synergies. At recent strip prices, we estimate the combined business should generate more than $4.5 billion in cumulative free cash flow during the next 4.5 years through 2030.

The significant free cash flow generation gives us confidence in providing a clear pathway to reduce debt while maintaining our strong return of capital program to shareholders aligned with Magnolia's business model. Slide nine shows our record of strong and consistent growth in our dividends since it was established in 2021. Our confidence in the high quality and capability of the WildFire assets and higher free cash flow generation supports improved shareholder returns, driving an immediate increase of 9% in our quarterly dividend to $0.18 per share, payable in the third quarter of this year. This is also the second increase in our quarterly dividend this year, following a 10% increase announced in January. We also expect to maintain our ongoing share repurchases of at least 1% of outstanding shares per quarter after closing the transaction.

Finally, on slide 10, this shows the history of Magnolia's return of capital program since the company's inception eight years ago. Over this period, we have returned approximately $2 billion to our shareholders or roughly 40% of our market value, an accomplishment we take pride in. Based on the strategic benefits of this acquisition and the anticipated strong and consistent free cash flow generation, we expect our durable track record of capital return to shareholders will endure as we execute the same proven business model that continues to compound value for our shareholders. One final item before we take your questions. As noted in this morning's press release, Magnolia's second quarter total production averaged approximately 106,000 barrels of oil equivalent per day, with oil production of roughly 42,000 barrels a day.

D&C capital for the second quarter was $125 million, and the company ended the quarter with cash on the balance sheet of $296 million. Based on Magnolia's strong second quarter production, the company is increasing its full year 2026 annual production growth guidance for Magnolia on a standalone basis to 6% from 5%. Additional details on the impact of the WildFire acquisition to Magnolia's 2026 production and capital spending will be provided after closing, which is expected to occur late in the third quarter. To wrap up, the WildFire acquisition is a classic case of having an opportunity to own more high-quality acreage and inventory in our own backyard that we know and understand well. Not only are these assets a hand-in-glove fit for Magnolia, but they also offer unmatched resource benefits while meeting several important characteristics we look for.

Focused high-quality assets with concentrated scale, a low capital reinvestment rate providing moderate annual total production growth and oil production growth with high operating margins and steady free cash flow, allowing for consistent and significant shareholder returns. Importantly, this allows Magnolia to continue to execute on its differentiated and successful business model. The combination of these two high-quality businesses improves our position for sustained growth, strengthens our financial returns, and increases our dividend per share payout capacity, creating improved long-term value for our shareholders. Thank you. We're now ready to take your questions.

We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Neal Dingmann with William Blair. Please go ahead. Morning, Chris and team.

Congrats on the deal. I'm sure it's been a long few days, but, Chris, my question is on upcoming activity. You mentioned, in the Magnolia way, you'll continue to spend less than that 55% EBITDAX. I think if I see right, that WildFire was running a couple of rigs. Is the plan you think would be still, is two plus two still going to equal four from an activity standpoint? Is there anything you can say on that yet?

Sure. Thanks, Neal. Immediately we'll take on the two plus one, as you mentioned, the two rigs, one completion crew, which will double ourselves. We'll take a close look at this. Just understand, and I would say this for any of the questions, we haven't closed the deal yet, so as I said, we'll close late in the third quarter. As we get after this, we're going to be looking at achieving, applying the technical capabilities that our team brings to the subsurface and also the supply chain aspects that I mentioned in the remarks. We'll look at and see if we can do better. I believe we can do a touch better than this. For initial purposes, we'll take on the two rigs and one completion crew. I don't want to get into too many specifics around- Sure the type of equipment or who, but you can imagine that there may be some things there as well.

Absolutely. Just maybe in that same vein on activity, seems like now with the combined, will you do a lot more multiformational? Again, when you attack it now, are you going to attack Austin Chalk? Maybe talk about that because it seems like there's- Everything.

Yeah, everything. We will be attacking everything. I would tell you initially the big mix, broad mix will be a fairly even and consistent mix of Chalk and Eagle Ford, roughly. With Woodbine maybe a little bit at a later stage, but we'll mix some of that in as well with time. Look, this is not going to be very different than what we've been doing from attacking it. I think the benefits are the low oil decline rate that they have in the Eagle Ford, the shallower nature of those wells, and the lower cost of those wells. That's a really important aspect of the assets. I think there we can see some benefit in our capital program as well.

Good. I'll pass it over. Thank you so much, Chris. Thanks. Congratulations. Thanks. The next question comes from Peyton Dorn with UBS.

Please go ahead. Hey, guys.

Thank you very much for getting me on. Within the acquisition, you obviously highlight the mention of WildFire Sand Mine and the gathering lines. I'm just curious, with more scale in Giddings, if you see an opportunity for some more midstream or services integration beyond the mine and the pipes. Broadly, how do you see yourself benefiting from more scale as it's embedded in that synergies target that you put out? Thanks. I think as far as more integration of infrastructure, it's coming with plenty.

A lot of the gas gathering lines that I mentioned, obviously the sand mine that you pointed out. The adjacency of the acreage and the overlap is, I think, one point to emphasize, if you will. There's a lot of benefits that are going to come to us from, again, a word that I don't often like to use, the simple scale of this. It's massive. Spanning probably seven, eight counties at least. As we wrap everything together, we'll continue to look for more with time, but I think, the percentage allocation of the synergies that I mentioned, the 60% to D&C and field operations and G&A getting 20 each, I think sort of speaks to a lot of what the point is and what we think we can capture.

There's just a lot there, Peyton.

Yeah, no, that's helpful to hear. We'll be interested to see how it all develops and unfolds. Thanks for having me on.

Thanks. The next question comes from Tim Rezvan with KeyBanc Capital Markets.

Please go ahead. Good morning, folks.

Thanks for taking our questions. Chris, I wanted to start on the resource base WildFire Energy has. First off, it looks like about 99% of your Giddings wells since 2019 have been in the Austin Chalk. WildFire Energy's been almost exclusively focused in Eagle Ford Shale, and we noticed your Austin Chalk wells produce a lot more oil than WildFire Energy wells, even though you have a lower oil SKU. What subsurface expertise do you believe you have in the Eagle Ford, given you really haven't drilled there? Just trying to understand. You must like something. Just trying to learn a little more about that. Thanks. Yeah, honestly, remember we have a sizable Karnes area asset that it's a mix of Eagle Ford and Austin Chalk, but it's a lot of Eagle Ford wells there too.

We do have quite a bit of experience drilling in the Eagle Ford, not necessarily in Giddings, but what I would point out is that while the cumulative oil may be a little bit less in their Eagle Ford wells versus some of the Austin Chalk that we see, remember that these wells are a substantial amount shallower, probably about 30% shallower, than most of the wells we've drilled in the Austin Chalk. The economics are actually very, very good for those Eagle Ford wells, despite what you're sort of seeing in the cumes.

I'd also add, Tim, the Austin Chalk doesn't stop at our lease lines, so they have Austin Chalk throughout the acreage. They also have Eagle Ford. We look at the full cycle economics and what money we get back and the returns we make on the wells. It's not dissimilar. Okay. Makes sense.

I appreciate that. You have some pretty aggressive de-leveraging plans after closing into 2028. Have you hedged any of the oil now? Do you plan to, just given how volatile oil prices have been?

Yeah, it's a good question. As hedging has historically not been really a part of our policy, you just sort of talk it through and you ask yourself, the question is, "Why is there a need to hedge?" Hedging is a form of insurance, as I've always said. You use insurance to protect something. Previously, we've had a very, very low amount of debt. With the WildFire acquisition, we've added a sizable amount of debt here, although our cash flow will also grow, so we believe the additional debt is quite manageable. Despite that belief, the additional debt does increase the financial risk for the organization from an outsider's perspective. I think it's critical for us to safeguard our business model, which includes providing a significant return of capital to our shareholders. We did inherit some hedges on a portion of WildFire's oil production.

Those provide us with a, what I would say is a comfortable floor, without giving away too many of the details, a comfortable floor, into 2027. We also expect to opportunistically add some additional hedges with the recent volatility and higher prices that's helped us here lately. We're doing this to provide additional assurance around our model, and obviously the current market strength and volatility may also allow us to accelerate that debt reduction. I think, it's a useful tool and tactic right now.

Okay. Thank you. The next question comes from Leo Mariani with KeyBanc.

Please go ahead. Hey, guys.

Was hoping that you could speak a bit more to inventory here. If you talk about just historical Magnolia, you guys have always said that you were focused on 200,000 development acres and felt very confident there were at least five years of drilling there, that we very much look like what it is today. Can you speak to something similar on the Wildfire assets in terms of how much of that acreage do you think is in development area? Is there a rough metric in terms of years of drilling you feel very confident in?

Sure. Yeah. Thanks for the question. Look, you're right. I've gone the last eight years and really not discussed our inventory, while continuing to appraise more acreage in Giddings and add inventory. I don't think our methods or philosophy is going to change much around discussing specific inventory numbers. Look, this is currently one of the largest acreage positions in Texas and South Texas. It's in a well-known, highly prolific oil and gas field. I'm not worried or concerned about inventory at all. We can maintain our business model with mid-single digit growth for essentially as long as we would like to. The short answer on, to try to get to your question specifically, the answer's a lot. It's not just a lot, it's a lot, a lot. The better question, is it three times or four times a lot?

The expanded answer is, just with Magnolia standalone, where I've often said I really don't know how much, I'm very confident that the inventory will continue to grow as we drill, appraise, and learn more, just as we have over the past eight years. There's been a lot of naysayers, including some of the technical research shops that were very skeptical early on. It's just recently that we're getting a little bit more credit here, with some revised numbers that they've put out. When we founded the company eight years ago, Stephen Chazen was CEO. We really didn't know what we had. We knew that there was a lot of oil and gas in place, but we didn't know if we could improve the predictability and the economics. Our teams got at it, and they figured it out.

It was about that time that we initiated the dividend payout five years ago when we really knew. I remember someone asked Steve about the inventory, and he said, "I have no concerns that my wife will be cashing Giddings dividend checks for a very long time." She's still cashing dividend checks right now, and the compound annual growth rate of the dividend is more than 17%. I'm confident that my wife is going to be cashing, getting dividend checks for a very long time, too. Leo, I'm not really concerned about the inventory at all. This will continue to grow as we get at it, and as we figure it out. It's an extensive, expansive, amount of acreage with multi-dimensional opportunities. As I said, a lot of depth to it too, and various zones and benches. I have no concerns. Okay.

Appreciate that. Just wanted to touch base on some of these high-level thoughts on a few of the key costs. I guess this is oilier. You certainly talk about some OpEx improvements over time. Can you give us any high-level color in terms of where LOE or GP&T or G&A kind of comes out on the WildFire assets at all, in comparison to where Magnolia is? Do you expect any cash tax shield as a result of this? Could this defer some of your taxes for handful years?

Yeah, sure. We'll give more specifics after the close on guidance for both production, pro forma production, pro forma capital, and some of the specific costs. To give you a sense, obviously understand that the WildFire assets are a lot oilier, about 70% oil cut. That's going to bring our oil mix pro forma at about 50%. Our LOE will move up a little higher pro forma because of that oilier mix. WildFire's operated LOE was, call it just under 750 BOE. Pro forma, I expect our LOE to be probably below $6 because we've been running about five. To give you a little sense. Because of that oily mix, the GP&T will come down a bit. There's less gas. To give you a sense around that. Cash taxes, I don't expect much there.

I expect, to your point, a shield, if you will.

Yeah. We'll get a benefit this year from that as well, on taxes. Cash taxes. Okay. That's super helpful in terms of that rundown.

Chris, you kind of spoke to funding the cash portion with kind of a mix of some debt and some new equity over time. Can you provide any additional color there? Is that something you hope to prosecute very quickly here? Are you waiting for close? Just any color on that would be helpful.

The overtime is not much time. The key word is balanced mix of stock and equity. I would focus on the balance. It's appropriate that this transaction and acquisition be done in this manner. It's sort of even, without getting into specifics. It's a good, balanced mix of consideration for all parties, the owners, and shareholders.

Okay, got it. Thanks. The next question comes from Neil Mehta with Goldman Sachs.

Please go ahead. Yeah. Thanks, guys, and congrats on the transaction.

The assets fit like a glove on the map, Chris. I guess the logical question around how far can you extend the laterals as we think about that D&C and facilities synergies, if you could put any quantification around it and how you guys are thinking about prosecuting that?

Yeah. There's a lot of adjacent acreage. The adjacency is probably 70% or so. I would tell you WildFire's probably about 8,000, 8,500 feet per average on their lateral. We've typically been about that with the extensions. I think we're probably moving, in many respects, probably to 10,000-15,000 feet. There's going to be a lot of that into moving into our program.

That's great. One of the parts of this transaction is your oil percentages going up from 40%-50%. Chris, was that a conscious decision from a commodity perspective of where you want to get exposure over time? While we're on the topic, can you also talk about decline rates? What does the pro forma portfolio look like relative to what you would be standalone?

Yeah. Was it a conscious decision? Probably, yeah. We've always liked oil and had a bent and a lean and a preference for oil. We have a lot of gas. Don't get me wrong. We have a lot of gas. Gas may have its day, but it's not today. That maybe surprised some, but nevertheless, it doesn't honestly surprise us very much. Oil is a global commodity, and we feel more optimistic about it generally. The economics for us are generally better. Yes, it was a conscious decision. The decline rate, I would tell you, is probably still low thirties for us on a pro forma basis.

Awesome. Thanks, guys. Congrats. Thanks.

As a reminder, if you would like to ask a question, please press star then one to join the question queue. The next question comes from Charles Meade with Johnson Rice. Please go ahead. Yes, good morning, Chris, Brian, and the rest of your Magnolia team there.

Just one question for me, Chris, and someone else tried to ask about this. On hedging and sticking with the idea that it's an insurance policy or de-risker, I'm trying to get an idea of what your timeline for buying that insurance would be. I think that classically, you don't want to hedge assets before you close on them, but you guys are coming in with zero leverage, you have capacity on your own asset base to add some hedges. I wonder if you could just elaborate on your appetite with respect to the timing, and also maybe if you could just give us a clue about how much of that WildFire asset base is hedged that you're going to be assuming.

Yeah. I don't want to get into a lot of the specifics on the numbers yet, but I would tell you the answer to the leaning in on it or the appetite, if you will, is probably sooner rather than later. The economics around the transaction don't require front-month oil prices to generate very strong returns. This is sort of gravy, if you will. If we can do things in and around where we sit right now, we will probably do that, as you pointed out a little bit on our own oil volumes and we anticipate closing. All's good there. If we have the opportunity to do a little bit more, we may take that opportunistically, and the volatility is providing some of that for us.

I feel very comfortable that at these prices, it's a sort of gravy, icing on top, if you will, and it'll only accelerate our ability to pay down the debt.

Got it. Thank you. Icing and gravy. Thank you, Chris. Doesn't sound too appetizing.

The next question comes from Gabe Daoud with Truist. Please go ahead. Thanks. Morning, everyone.

Congrats on the deal. Was hoping, Chris, we could maybe just get an update from you on where your current D&C per foot stands in Giddings and maybe how that compared to WildFire. I know you have the $60 million of synergy targets out there, but curious, from where we stand today, what do those numbers look like?

Yeah, our numbers have been hovering below 1,100 per lateral foot. Theirs are lower, and so I expect that it'll pull us down. As I mentioned, the shallower depths in the Eagle Ford wells, that will help us there. I feel pretty good that given the synergies that I mentioned, that we'll be coming down, and that's really part of the lower reinvestment rate that I think their assets bring to the table and helping us on a pro forma basis. The capital program is going to be quite a bit more efficient and generate more in the way of free cash flow on a combined basis.

Got it. Thanks. That's helpful, Chris. I guess as a follow-up, going back to the resource question, I know you guys generally haven't talked about locations, but maybe on a pro forma basis, how should we think about the number of years that you could sustain the attractive Magnolia business model, which is a lower reinvestment rate, as you noted, and mid-single-digit production growth? Is it decades? Is it a decade? Just any framing on that would be helpful.

Well, I don't consider myself really old, but it's going to way surpass my career, that's for sure. Is it a decade? Probably. Probably beyond that. Look, there's hundreds of locations. Hundreds. Not just with our acreage, but with WildFire's acreage and opportunity set. As I said, anything larger at this point that we would consider would really fall by the wayside. There's no need to do that. This is probably, likely the one deal, and as I said, we're very picky and selective around these things. We look at dozens and dozens of opportunities. This is the one larger deal based on the fit, the overlap, the opportunity set, that really would ever make sense for us. Giddings has been a company maker for Magnolia, and this only extends that potential.

Awesome. Thanks, Chris. Congrats again.

Thank you. The next question comes from Oliver Huang with TPH.

Please go ahead. Good morning, Chris and Brian.

Congrats on getting the deal across the finish line. Thanks for taking the questions here. Just a couple quick ones for me. Are there any sort of drilling commitments to be aware of here, just given the expansiveness of the acquired acreage?

None. Nothing significant that I'm aware of or we're aware of at all. Nothing on that front. Okay.

Makes sense. Just to follow up on the lateral length extension question from earlier, the 10,000-15,000 foot comment, is that specific to the WildFire acreage only, or is that where the overall program could transition to on a combined basis over time?

That's really specific to the adjacency, as I mentioned, and a significant portion of the acreage, Magnolia's acreage and WildFire's acreage, creates this adjacency. I think I mentioned the numbers being about 70% adjacency. There are a lot of chalk wells that will allow us to extend the lateral lengths over time.

Okay, perfect. Thanks for the time.

Thank you. This concludes our question and answer session and also concludes the conference call today.

Thank you for attending today's presentation.