Magnolia Oil & Gas to acquire $300m Giddings oil and gas assets

Magnolia Oil & Gas Corporation (NYSE: MGY) has entered into a definitive purchase agreement for acquiring specific oil and gas producing properties, including leasehold and mineral interests in Giddings. The transaction, valued at $300 million, is subject to standard purchase price adjustments and is expected to close in Q4 2023. The company plans to fund the deal using its available cash reserves, which stood at $677 million as of June 30, 2023.

Transaction Highlights and Financial Metrics

The asset acquisition expands Magnolia Oil & Gas Corporation‘s reach by adding roughly 48,000 net acres in Giddings and combines with a smaller acquisition concluded in July 2023. This boosts Magnolia Oil & Gas Corporation’s total acreage in Giddings to over 500,000 net acres. Additionally, Magnolia Oil & Gas Corporation projects that the production rates at the time of closing will be around 5,000 barrels of oil equivalent per day (Boe/d), with more than 70% being oil.

Magnolia Oil & Gas Corporation anticipates that this transaction will offer immediate financial benefits, enhancing key per-share metrics like cash flow and free cash flow. The acquired assets carry an attractive valuation, priced at 2.9x the estimated EBITDA for 2024 and expected to generate a free cash flow yield exceeding 20% during 2024 at current market rates.

Strategic Implications and Future Development

This acquisition aligns well with Magnolia Oil & Gas Corporation’s ongoing Giddings development program and is set to start contributing from 2024. The new assets are located in both the Eagle Ford and Austin Chalk formations, thereby fortifying Magnolia Oil & Gas Corporation’s high-margin production and free cash flow generation capabilities.

Statements from Magnolia Oil & Gas Corporation Leadership

Magnolia Oil & Gas Corporation President and CEO Chris Stavros stated, “We continue to leverage our accumulated knowledge and advanced understanding of Giddings by adding bolt-on oil and gas properties to expand our portfolio of high-quality opportunities and improve the overall business. Today’s transaction is a natural strategic fit for Magnolia and meets both the financial and operational characteristics we look for in a bolt-on acquisition that can be easily integrated into our Giddings development program.”

In summary, Magnolia Oil & Gas Corporation is seizing an opportunity to strategically expand its asset base in Giddings. The transaction is expected to provide a boost to the company’s key financial metrics while maintaining its commitment to capital discipline and shareholder value.