Torsten Asmus
Magnolia Oil & Fuel (NYSE:MGY) made some optimistic revisions to its 2023 steering, indicating stronger manufacturing development expectations together with decreased capex expectations. As effectively, Magnolia’s lease working bills dropped under $5 per BOE in Q2 2023.
These optimistic revisions could enable Magnolia to generate over $250 million in free money stream within the second half of 2023 at present strip. It might additionally be capable to obtain over $500 million in free money stream in 2024 whereas rising manufacturing within the mid-single digits.
I’ve thus elevated my estimate of Magnolia’s worth by $2 to $3 in comparison with once I checked out it in Might, and now estimate its worth at $26 to $27 per share at long-term $75 oil and $3.75 fuel.
Optimistic Steerage Revisions
With its Q2 2023 report, Magnolia made some optimistic revisions to its 2023 steering (from its Q1 2023 steering replace). It lowered its D&C capex steering by $15 million to $20 million, whereas concurrently growing its full-year manufacturing steering by 1% to 2%, on account of robust Giddings effectively efficiency.
Magnolia now expects D&C capex to finish up between $425 million to $440 million in 2023, together with manufacturing development of seven% to eight% in comparison with 2022.
Magnolia had beforehand made revisions to its authentic steering, which referred to as for 10% manufacturing development with a $490 million to $520 million capex funds.
Thus it now expects to ship 2% to three% much less manufacturing development than its authentic expectations with $65 million to $80 million much less D&C capex, which is a reasonably good consequence to me.
Because of Magnolia’s robust outcomes from its gassier Giddings wells although, its oil lower could lower in comparison with 2022, leading to oil manufacturing development doubtlessly ending up at 3% to 4%.
2H 2023 Outlook
Magnolia could now common roughly 81,500 BOEPD in 2H 2023 manufacturing, which might be roughly the identical (inside 1%) as its Q2 2023 manufacturing and 1% increased than its 1H 2023 manufacturing.
Magnolia’s oil lower has fluctuated a bit, going from 45% in Q1 2023 to 42% in Q2 2023. To be a bit conservative, I’ll assume a 42% oil lower for the second half of the 12 months.
Oil costs have improved considerably in order that 2H 2023 WTI strip is now round $83. Magnolia expects to understand round $3 lower than Magellan East Houston for its oil, and MEH is round $1.50 increased than WTI.
Magnolia is thus now projected to generate $663 million in revenues throughout 2H 2023.
Sort Barrels/Mcf $ Per Barrel/Mcf $ Million Oil 6,298,320 $81.50 $513 NGLs 4,048,920 $20.50 $83 Fuel 27,892,560 $2.40 $67 Whole Revenues $663 Click on to enlarge
This might enable Magnolia to generate round $254 million in free money stream through the second half of the 12 months. Magnolia expects 2H 2023 capex to common roughly $100 million per quarter.
$ Million Lease Working $75 Gathering, Transportation and Processing $22 Taxes Different Than Revenue $40 Money G&A $32 Web Money Curiosity $0 Capex $205 Money Revenue Taxes $30 Whole $409 Click on to enlarge
Magnolia could pay out $48 million in dividends in 2H 2023 if it retains its quarterly dividend at $0.115 per share. It additionally spent $40 million on a bolt-on acquisition for its Giddings asset that added 20,000 internet acres outdoors of its core improvement space and a number of other hundred BOEPD in present manufacturing.
This would go away it with $166 million for share repurchases and/or build up its money place. On the finish of Q2 2023, Magnolia had $677 million in money available and $400 million in 6.0% unsecured notes due 2026.
Notes On Valuation
Magnolia additionally indicated that it might be able to generate mid-single digit manufacturing development in 2024 with a $400 million to $425 million capital expenditure funds.
At present strip costs for 2024 (together with $80 WTI oil), Magnolia might be able to generate $600 million in free money stream earlier than money earnings taxes. That is higher than what I beforehand projected for Magnolia, as its newest replace reveals improved capital effectivity and lowered working prices. Magnolia’s lease working expense dropped under $5 per BOE in Q2 2023.
I’ve elevated my estimate of Magnolia’s worth because of the enhancements in its value construction and the improved outlook in near-term commodity costs. In a scenario the place long-term costs (after 2024) are $75 WTI oil and $3.75 NYMEX fuel, I now estimate Magnolia’s worth at $26 to $27 per share.
Conclusion
Magnolia made some optimistic revisions to each its manufacturing development steering and its capex steering for 2023. It now expects to generate 7% to eight% manufacturing development in 2023 with a $425 million to $440 million capex funds. Magnolia additionally thought (though not a part of formal steering) that it might be able to obtain mid-single digits manufacturing development in 2024 with a $400 million to $425 million capex funds.
This results in projections that Magnolia can generate $254 million in free money stream in 2H 2023, together with the influence of money earnings taxes. It additionally seems able to producing $600 million in free money stream in 2024 at present strip earlier than money earnings taxes. The influence of 2024 money earnings taxes is unsure, however it may possibly most likely generate $500 million to $550 million in free money stream after taxes.
I now imagine Magnolia is value $26 to $27 at long-term $75 WTI oil and $3.75 NYMEX fuel after its optimistic steering revisions, stable manufacturing development outlook and different value reductions.
