UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2019~~March 31, 2020


☐~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 001-38083

Magnolia Oil & Gas Corporation

(Exact Name of Registrant as Specified in its Charter)



Delaware		81-5365682
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Nine Greenway Plaza, Suite 1300		77046
Houston,	Texas	77046
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (713) 842-9050



Securities registered pursuant to section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.0001	MGY	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~November 4, 2019,~~May 8, 2020, there were ~~167,280,858~~166,579,165 shares of Class A Common Stock, $0.0001 par value per share, and ~~91,789,814~~85,789,814 shares of Class B Common Stock, $0.0001 par value per share, outstanding.

GLOSSARY OF CERTAIN OTHER TERMS

The following are definitions of certain other terms that are used in this Quarterly Report on Form 10-Q:

2026 Senior Notes. 6.0% Senior Notes due 2026.

Business Combination. The acquisition which closed on July 31, 2018 of certain right, title, and interest in certain oil and natural gas assets located primarily in the Karnes County portion of the Eagle Ford Shale in South Texas; certain right, title, and interest in certain oil and natural gas assets located primarily in the Giddings Field of the Austin Chalk; and a 35% membership interest in Ironwood Eagle Ford Midstream, LLC.

Class A Common Stock. Magnolia’s Class A Common Stock, par value $0.0001 per share.

Class B Common Stock. Magnolia’s Class B Common Stock, par value $0.0001 per share.

The Company or Magnolia. Magnolia Oil & Gas Corporation (either individually or together with its consolidated subsidiaries, as the context requires).

EnerVest. EnerVest Ltd.

Giddings Assets. Certain right, title, and interest in certain oil and natural gas assets located primarily in the Giddings Field of the Austin Chalk formation.

Issuers. Magnolia Operating and Magnolia Oil & Gas Finance Corp., a wholly owned subsidiary of Magnolia Operating.

Karnes County Assets.Certain right, title, and interest in certain oil and natural gas assets located primarily in the Karnes County portion of the Eagle Ford Shale in South Texas.

Karnes County Contributors. EnerVest Energy Institutional Fund XIV-A, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIV-WIC, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIV-2A, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIV-3A, L.P., a Delaware limited partnership, and EnerVest Energy Institutional Fund XIV-C, L.P., a Delaware limited partnership.

Magnolia Intermediate. Magnolia Oil & Gas Intermediate LLC.

Magnolia LLC. Magnolia Oil & Gas Parent LLC.

Magnolia LLC Units.Units representing limited liability company interests in Magnolia LLC.

Magnolia Operating. Magnolia Oil & Gas Operating LLC.

RBL Facility. Senior secured reserve-based revolving credit facility.

Services Agreement. That certain Services Agreement, by and between the Company and EnerVest Operating LLC (“EVOC”), pursuant to which EVOC provides certain services to the Company as described in the agreement.

Table of Contents



		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets ~~(unaudited)~~	1
	Consolidated ~~and Combined~~ Statements of Operations (unaudited)	2
	~~Combined Statement~~Consolidated Statements of Changes in ~~Parents' Net Investment~~Stockholders’ Equity (unaudited)	3
	Consolidated Statements of ~~Changes in Stockholders’ Equity~~Cash Flows (unaudited)	4
	~~Consolidated and Combined Statements of Cash Flows (unaudited)~~	6
	Notes to Consolidated Financial Statements (unaudited)	75
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2414
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3521
Item 4.	Controls and Procedures	3621
PART II.	OTHER INFORMATION	3622
Item 1.	Legal Proceedings	3622
Item 1A.	Risk Factors	3622
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3723
Item 3.	Defaults Upon Senior Securities	3723
Item 4.	Mine Safety Disclosures	3723
Item 5.	Other Information	3724
Item 6.	Exhibits	3824
Signatures		3825

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Magnolia Oil & Gas Corporation

Consolidated Balance Sheets

(In thousands)

Successor
September 30, 2019 December 31, 2018
ASSETS (Unaudited) (Audited)
CURRENT ASSETS
      Cash and cash equivalents $ 164,489
$ 135,758
Accounts receivable 120,664
140,284
Drilling advances 2,055
12,259
Other current assets 5,047
4,058
Total current assets 292,255
292,359
PROPERTY, PLANT AND EQUIPMENT
Oil and natural gas properties 3,741,357
3,250,742
Other 2,710
360
Accumulated depreciation, depletion and amortization (563,901 ) (177,898 )
Total property, plant and equipment, net 3,180,166
3,073,204
OTHER ASSETS
      Deferred financing costs, net 8,980
10,731
      Equity method investment 19,482
18,873
      Intangible assets, net 27,477
38,356
      Other long-term assets 4,773
—
TOTAL ASSETS $ 3,533,133
$ 3,433,523
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
      Accounts payable and accrued liabilities $ 186,627
$ 196,357
Other current liabilities 3,684
1,004
Total current liabilities 190,311
197,361
LONG-TERM LIABILITIES
Long-term debt, net 389,528
388,635
Asset retirement obligations, net of current 93,102
84,979
Deferred taxes, net 74,200
54,593
Other long-term liabilities 2,039
—
Total long-term liabilities 558,869
528,207
COMMITMENTS AND CONTINGENCIES (Note 16)

STOCKHOLDERS’ EQUITY
Class A Common Stock, $0.0001 par value, 1,300,000 shares authorized, 168,260 shares issued and 167,310 shares outstanding in 2019 and 156,333 shares issued and outstanding in 2018 17
16
Class B Common Stock, $0.0001 par value, 225,000 shares authorized, 91,790 and 93,346 shares issued and outstanding in 2019 and 2018, respectively 9
9
Additional paid-in capital 1,704,652
1,641,237
Treasury Stock, at cost, 950 shares in 2019 (9,722 ) —
Retained earnings 74,823
35,507
Noncontrolling interest 1,014,174
1,031,186
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 3,533,133
$ 3,433,523



	March 31, 2020			December 31, 2019
ASSETS	(Unaudited)			(Audited)
CURRENT ASSETS
Cash and cash equivalents	$	146,492		$	182,633
Accounts receivable	77,744			105,775
Drilling advances	863			299
Other current assets	4,146			4,511
Total current assets	229,245			293,218
PROPERTY, PLANT AND EQUIPMENT
Oil and natural gas properties	2,050,470			3,815,221
Other	3,391			3,087
Accumulated depreciation, depletion and amortization	(844,255		)	(701,551		)
Total property, plant and equipment, net	1,209,606			3,116,757
OTHER ASSETS
Deferred financing costs, net	7,806			8,390
Equity method investment	20,171			19,730
Intangible assets, net	20,225			23,851
Other long-term assets	3,776			4,460
TOTAL ASSETS	$	1,490,829		$	3,466,406
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	86,154		$	79,428
Other current liabilities (Note 7)	84,546			95,780
Total current liabilities	170,700			175,208
LONG-TERM LIABILITIES
Long-term debt, net	390,147			389,835
Asset retirement obligations, net of current	97,008			93,524
Deferred taxes, net	3,181			77,834
Other long-term liabilities	903			1,476
Total long-term liabilities	491,239			562,669
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS’ EQUITY
Class A Common Stock, $0.0001 par value, 1,300,000 shares authorized, 168,473 shares issued and 166,473 shares outstanding in 2020 and 168,318 shares issued and 167,318 shares outstanding in 2019	17			17
Class B Common Stock, $0.0001 par value, 225,000 shares authorized, 85,790 shares issued and outstanding in 2020 and 2019	9			9
Additional paid-in capital	1,703,996			1,703,362
Treasury Stock, at cost, 2,000 shares and 1,000 shares in 2020 and 2019, respectively	(16,760		)	(10,277		)
Retained earnings (Accumulated deficit)	(1,144,070		)	82,940
Noncontrolling interest	285,698			952,478
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,490,829		$	3,466,406

The accompanying notes are an integral part to these consolidated financial statements.

Magnolia Oil & Gas Corporation

Consolidated ~~and Combined~~ Statements of Operations (Unaudited)

(In thousands, except per share data)


	Successor									Predecessor
	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			July 31, 2018 Through September 30, 2018			July 1, 2018 Through July 30, 2018			January 1, 2018 Through July 30, 2018			Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
REVENUES
Oil revenues	$	207,840		$	584,009		$	143,202		$	68,487		$	399,124		$	154,686		$	171,654
Natural gas revenues	21,243			71,208			13,414			3,646			22,135			16,175			27,375
Natural gas liquids revenues	15,716			51,215			21,547			4,754			27,927			10,504			19,645
Total revenues	244,799			706,432			178,163			76,887			449,186			181,365			218,674
OPERATING EXPENSES
Lease operating expenses	24,344			70,755			11,016			3,681			23,513			24,163			21,518
Gathering, transportation and processing	9,270			26,016			5,353			2,240			12,929
Gathering, transportation, and processing																8,020			9,315
Taxes other than income	13,333			40,825			9,351			2,087			23,763			10,018			14,401
Exploration expense	3,924			10,017			11,221			40			492			556,427			2,476
Impairment of oil and natural gas properties																1,381,258			—
Asset retirement obligation accretion	1,394			4,095			391			21			104			1,438			1,328
Depreciation, depletion and amortization	143,894			385,942			65,902			23,157			137,871			142,671			115,946
Amortization of intangible assets	3,626			10,879			2,418			—			—			3,626			3,626
General and administrative expenses	17,345			52,648			10,297			1,701			12,710			18,080			16,196
Transaction related costs	—			438			22,366			—			—			—			353
Total operating costs and expenses	217,130			601,615			138,315			32,927			211,382			2,145,701			185,159
OPERATING INCOME	27,669			104,817			39,848			43,960			237,804

OPERATING INCOME (LOSS)																(1,964,336		)	33,515

OTHER INCOME (EXPENSE)
Income (loss) from equity method investee	92			608			309			(345		)	711
Income from equity method investee																440			388
Interest expense, net	(6,896		)	(21,611		)	(4,959		)	—			—			(6,757		)	(7,416		)
Gain (loss) on derivatives, net	—			—			—			3,865			(18,127		)
Other income (expense), net	21			8			(7,019		)	24			(50		)	(472		)	1
Total other income (expense)	(6,783		)	(20,995		)	(11,669		)	3,544			(17,466		)	(6,789		)	(7,027		)
INCOME BEFORE INCOME TAXES	20,886			83,822			28,179			47,504			220,338
Income tax expense	3,529			12,449			3,538			766			1,785
NET INCOME	17,357			71,373			24,641			46,738			218,553
LESS: Net income attributable to noncontrolling interest	6,810			29,294			18,465			—			—
NET INCOME ATTRIBUTABLE TO MAGNOLIA	10,547			42,079			6,176			46,738			218,553
LESS: Non-cash deemed dividend related to warrant exchange	2,763			2,763			—			—			—
NET INCOME ATTRIBUTABLE TO CLASS A COMMON STOCK	$	7,784		$	39,316		$	6,176		$	46,738		$	218,553
NET INCOME PER COMMON SHARE

INCOME (LOSS) BEFORE INCOME TAXES																(1,971,125		)	26,488
Income tax expense (benefit)																(75,826		)	3,775
NET INCOME (LOSS)																(1,895,299		)	22,713
LESS: Net income (loss) attributable to noncontrolling interest																(668,289		)	9,687
NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON STOCK																$	(1,227,010	)	$	13,026

NET INCOME (LOSS) PER SHARE OF CLASS A COMMON STOCK
Basic	$	0.05		$	0.25		$	0.04								$	(7.34	)	$	0.08
Diluted	$	0.05		$	0.24		$	0.04								$	(7.34	)	$	0.08
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic	166,872			160,051			151,992									167,149			156,322
Diluted	167,108			161,488			157,072									167,149			158,140

The accompanying notes are an integral part of these consolidated financial statements.

Magnolia Oil & Gas Corporation

~~Combined Statement~~Consolidated Statements of Changes in ~~Parents’ Net Investment~~ Stockholders’ Equity (Unaudited)

(In thousands)

Predecessor
BALANCE, DECEMBER 31, 2017 $ 1,597,838
Parents’ contribution, net 133,117
Net income 85,366
Balance – March 31, 2018 $ 1,816,321
Parents’ distributions, net (48,937 )
Net income 86,449
Balance – June 30, 2018 $ 1,853,833
Parents’ distributions, net (21,539 )
Net income 46,738
Balance – July 30, 2018 $ 1,879,032



	Class A Common Stock				Class B Common Stock				Additional Paid In Capital			Retained Earnings		Total Stockholders’ Equity			Noncontrolling Interest			Total Equity
	Shares		Value		Shares		Value
Balance, December 31, 2018	156,333		$	16	93,346		$	9	$	1,641,237		$	35,507	$	1,676,769		$	1,031,186		$	2,707,955
Stock based compensation expense	—		—		—		—		2,432			—		2,432			—			2,432
Changes in ownership interest adjustment	—		—		—		—		(919		)	—		(919		)	832			(87		)
Final settlement adjustment related to Business Combination	(496	)	—		(1,556	)	—		(6,095		)	—		(6,095		)	(19,150		)	(25,245		)
Contributions from noncontrolling interest owner	—		—		—		—		—			—		—			8,809			8,809
Net income	—		—		—		—		—			13,026		13,026			9,687			22,713
Balance, March 31, 2019	155,837		$	16	91,790		$	9	$	1,636,655		$	48,533	$	1,685,213		$	1,031,364		$	2,716,577

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~Magnolia Oil & Gas Corporation~~

~~Consolidated Statements of Changes in Stockholders’ Equity (Successor)~~ ~~(Unaudited)~~

~~(In thousands)~~

Class A Common Stock Class B Common Stock Class F Common Stock Additional Paid In Capital Retained Earnings Total Stockholders’ Equity Noncontrolling Interest Total Equity
Shares Value Shares Value Shares Value
Balance, July 30, 2018 3,052
$ —
—
$ —
16,250
$ 2
$ 8,370
$ (3,588 ) $ 4,784
$ —
$ 4,784
Class A Common Stock released from possible redemption 61,948
6
—
—
—
—
619,473
—
619,479
—
619,479
Class A Common Stock redeemed (1 ) —
—
—
—
—
(9 ) —
(9 ) —
(9 )
Conversion of Common Stock from Class F to Class A at closing of Business Combination 16,250
2
—
—
(16,250 ) (2 ) —
—
—
—
—
Common stock issued as part of the Business Combination 31,791
3
83,939
9
—
—
391,017
—
391,029
1,032,455
1,423,484
Common stock issued in private placement 35,500
4
—
—
—
—
354,996
—
355,000
—
355,000
Earnout consideration issued as part for the Business Combination —
—
—
—
—
—
41,371
—
41,371
108,329
149,700
Non-compete consideration —
—
—
—
—
—
44,400
—
44,400
—
44,400
Changes in ownership interest adjustment —
—
—
—
—
—
206,966
—
206,966
(206,966 ) —
Changes in deferred tax liability —
—
—
—
—
—
(52,787 ) —
(52,787 ) —
(52,787 )
Balance, July 31, 2018 148,540
$ 15
83,939
$ 9
—
$ —
$ 1,613,797
$ (3,588 ) $ 1,610,233
$ 933,818
$ 2,544,051
Issuance of earnout share consideration Tranche I 1,244
—
3,256
—
—
—
—
—
—
—
—
Issuance of earnout share consideration Tranche II 1,244
—
3,256
—
—
—
—
—
—
—
—
Common stock issued in connection with Harvest Acquisition 4,200
1
—
—
—
—
58,211
—
58,212
—
58,212
Net income —
—
—
—
—
—
—
6,176
6,176
18,465
24,641
Changes in ownership interest adjustment —
—
—
—
—
—
(39,366 ) —
(39,366 ) 39,366
—
Changes in deferred tax liability —
—
—
—
—
—
15,263
—
15,263
—
15,263
Balance, September 30, 2018 155,228
$ 16
90,451
$ 9
—
$ —
$ 1,647,905
$ 2,588
$ 1,650,518
$ 991,649
$ 2,642,167

~~The accompanying notes are an integral part to these consolidated financial statements.~~

~~Magnolia Oil & Gas Corporation~~

~~Consolidated Statements of Changes in Stockholders’ Equity (Successor)~~ ~~(Unaudited)~~

~~(In thousands)~~

Class A Common Stock Class B Common Stock Additional Paid In Capital Treasury Stock Retained Earnings Total Stockholders’ Equity Noncontrolling Interest Total Equity
Shares Value Shares Value Shares Value
Balance, December 31, 2018 156,333
$ 16
93,346
$ 9
$ 1,641,237
—
$ —
$ 35,507
$ 1,676,769
$ 1,031,186
$ 2,707,955
Stock based compensation expense —
—
—
—
2,432
—
—
—
2,432
—
2,432
Changes in ownership interest adjustment —
—
—
—
(919 ) —
—
—
(919 ) 832
(87 )
Final settlement adjustment related to Business Combination (496 ) —
(1,556 ) —
(6,095 ) —
—
—
(6,095 ) (19,150 ) (25,245 )
Contributions from noncontrolling interest owners —
—
—
—
—
—
—
—
—
8,809
8,809
Net income —
—
—
—
—
—
—
13,026
13,026
9,687
22,713
Balance, March 31, 2019 155,837
$ 16
91,790
$ 9
$ 1,636,655
—
$ —
$ 48,533
$ 1,685,213
$ 1,031,364
$ 2,716,577
Stock based compensation expense —
—
—
—
3,115
—
—
—
3,115
—
3,115
Changes in ownership interest adjustment —
—
—
—
108
—
—
—
108
634
742
Common stock issued in connection with acquisition 3,055
—
—
—
33,693
—
—
—
33,693
—
33,693
Offering expenses incurred in connection with warrants exchange —
—
—
—
(1,055 ) —
—
—
(1,055 ) —
(1,055 )
Distributions to noncontrolling interest owners —
—
—
—
—
—
—
—
—
(227 ) (227 )
Net income —
—
—
—
—
—
—
18,506
18,506
12,797
31,303
Balance, June 30, 2019 158,892
$ 16
91,790
$ 9
$ 1,672,516
—
$ —
$ 67,039
$ 1,739,580
$ 1,044,568
$ 2,784,148
Stock based compensation expense —
—
—
—
2,829
—
—
—
2,829
—
2,829
Changes in ownership interest adjustment —
—
—
—
28,215
—
—
—
28,215
(36,715 ) (8,500 )
Common stock issued in connection with warrants exchange 9,179
1
—
—
1,624
—
—
(2,763 ) (1,138 ) —
(1,138 )
Common stock issued related to stock based compensation, net 189
—
—
—
(532 ) —
—
—
(532 ) —
(532 )
Common stock repurchased —
—
—
—
—
950
(9,722 ) —
(9,722 ) —
(9,722 )
Distributions to noncontrolling interest owners —
—
—
—
—
—
—
—
—
(489 ) (489 )
Net income —
—
—
—
—
—
—
10,547
10,547
6,810
17,357
Balance, September 30, 2019 168,260
$ 17
91,790
$ 9
$ 1,704,652
950
$ (9,722 ) $ 74,823
$ 1,769,779
$ 1,014,174
$ 2,783,953



	Class A Common Stock			Class B Common Stock			Additional Paid In Capital			Treasury Stock				Retained Earnings/ Accumulated Deficit			Total Stockholders’ Equity			Noncontrolling Interest			Total Equity
	Shares	Value		Shares	Value					Shares	Value
Balance, December 31, 2019	168,319	$	17	85,790	$	9	$	1,703,362		1,000	$	(10,277	)	$	82,940		$	1,776,051		$	952,478		$	2,728,529
Stock based compensation expense, net of forfeitures	—	—		—	—		2,879			—	—			—			2,879			—			2,879
Changes in ownership interest adjustment and in deferred tax liability	—	—		—	—		(1,793		)	—	—			—			(1,793		)	1,793			—
Common stock issued related to stock based compensation, net	154	—		—	—		(452		)	—	—			—			(452		)	—			(452		)
Class A Common Stock repurchase	—	—		—	—		—			1,000	(6,483		)	—			(6,483		)	—			(6,483		)
Distributions to noncontrolling interest owners	—	—		—	—		—			—	—			—			—			(284		)	(284		)
Net loss	—	—		—	—		—			—	—			(1,227,010		)	(1,227,010		)	(668,289		)	(1,895,299		)
Balance, March 31, 2020	168,473	$	17	85,790	$	9	$	1,703,996		2,000	$	(16,760	)	$	(1,144,070	)	$	543,192		$	285,698		$	828,890

The accompanying notes are an integral part to these consolidated financial statements.

Magnolia Oil & Gas Corporation

Consolidated ~~and Combined~~ Statements of Cash Flows (Unaudited)

(In thousands)


	Successor						Predecessor
	Nine Months Ended September 30, 2019			July 31, 2018 Through September 30, 2018			January 1, 2018 Through July 30, 2018			Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	71,373		$	24,641		$	218,553
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)										$	(1,895,299	)	$	22,713
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	385,942			65,902			137,871			142,671			115,946
Amortization of intangible assets	10,879			2,418			—			3,626			3,626
Exploration expense, non-cash	536			—			—			555,189			483
Impairment of oil and natural gas properties										1,381,258			—
Asset retirement obligations accretion expense	4,095			391			104			1,438			1,328
Amortization of deferred financing costs	2,644			570			—			896			871
Loss on derivatives, net	—			—			18,127
Cash settlements of matured derivative contracts	—			—			(27,617		)
Deferred taxes	11,765			3,493			324
Contingent consideration change in fair value	—			6,700			—
Deferred tax expense (benefit)										(74,654		)	3,415
Stock based compensation	8,376			—			—			2,879			2,432
Other	(526		)	(218		)	(796		)	(447		)	(393		)
Changes in operating assets and liabilities:
Accounts receivable	(6,937		)	(77,500		)	(61,405		)	28,031			5,012
Prepaid expenses and other assets	996			(275		)	—
Accounts payable and accrued liabilities	(6,345		)	64,511			36
Accrued liabilities										(16,547		)	(29,955		)
Accounts payable										6,726			(6,729		)
Drilling advances	10,205			(3,376		)	—			(563		)	(599		)
Other assets and liabilities, net	(4,392		)	45			(385		)	(326		)	(1,588		)
Net cash provided by operating activities	488,611			87,302			284,812			134,878			116,562

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds withdrawn from Trust Account	—			656,078			—
Acquisition of EnerVest properties	4,250			(1,219,217		)	—			—			4,250
Acquisitions, other	(93,221		)	(135,652		)	(150,139		)	(69,390		)	(53,326		)
Additions to oil and natural gas properties	(364,859		)	(33,724		)	(197,314		)	(94,210		)	(134,435		)
Payment of Contingent Consideration	—			(26,000		)	—
Other investing	(247		)	—			—			(200		)	197
Net cash used in investing activities	(454,077		)	(758,515		)	(347,453		)	(163,800		)	(183,314		)

CASH FLOW FROM FINANCING ACTIVITIES
Parents’ contribution, net	—			—			62,641
Contributions from noncontrolling interest owners	7,301			—			—			—			7,301
Distributions to noncontrolling interest owners	(716		)	—			—			(284		)	—
Issuance of common stock	—			355,000			—
Proceeds from issuance of long term debt	—			400,000			—
Repayments of deferred underwriting compensation	—			(22,750		)	—
Cash paid for debt issuance costs	—			(23,336		)	—
Common stock repurchased	(9,722		)	—			—
Class A Common Stock repurchase										(6,483		)	—
Other financing activities	(2,666		)	(1,009		)	—			(452		)	—
Net cash provided by (used in) financing activities	(5,803		)	707,905			62,641			(7,219		)	7,301

NET CHANGE IN CASH AND CASH EQUIVALENTS	28,731			36,692			—			(36,141		)	(59,451		)
Cash and cash equivalents – Beginning of period	135,758			23			—			182,633			135,758
Cash and cash equivalents – End of period	$	164,489		$	36,715		$	—		$	146,492		$	76,307

SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental non-cash operating activity:
Cash paid for interest										$	12,540		$	12,571
Supplemental non-cash investing and financing activity:
Accruals or liabilities for capital expenditures										$	47,903		$	61,778
Supplemental non-cash lease operating activity:
Right-of-use assets obtained in exchange for operating lease obligations										$	—		$	2,516

The accompanying notes are an integral part of these consolidated financial statements.

Magnolia Oil & Gas Corporation

Notes to Consolidated Financial Statements

~~(Unaudited)~~

1. Description of Business and Basis of Presentation

Organization and ~~General~~

~~Magnolia Oil & Gas Corporation (formerly TPG Pace Energy Holdings Corp.) (the “Company” or “Magnolia”) was incorporated in Delaware onFebruary 14, 2017.~~

On March 15, 2018, the Company formed 3 wholly owned subsidiaries: Magnolia Oil & Gas Parent LLC (“Magnolia LLC”), Magnolia Oil & Gas Intermediate LLC (“Magnolia Intermediate”), and Magnolia Oil & Gas Operating LLC (“Magnolia Operating”), allNature of ~~which are Delaware limited liability companies formed in contemplation of the Business Combination (as defined herein).~~

~~Business Combination~~

~~On July 31, 2018 (the “Closing Date”), the Company and Magnolia LLC consummated the acquisition of the following:~~

certain right, title, and interest in certain oil and natural gas assets located primarily in the Karnes County portion of the Eagle Ford Shale in South Texas (the “Karnes County Assets” and, such business the “Karnes County Business”) pursuant to that certain Contribution and Merger Agreement (as subsequently amended, the “Karnes County Contribution Agreement”), by and among the Company, Magnolia LLC and certain affiliates (the “Karnes County Contributors”) of EnerVest Ltd. (“EnerVest”);

certain right, title, and interest in certain oil and natural gas assets located primarily in the Giddings Field of the Austin Chalk (the “Giddings Assets”) pursuant to that certain Purchase and Sale Agreement (the “Giddings Purchase Agreement”) by and among Magnolia LLC and certain affiliates of EnerVest (the “Giddings Sellers”); and

a 35% membership interest (the “Ironwood Interests”) in Ironwood Eagle Ford Midstream LLC (“Ironwood”), a Texas limited liability company, which owns an Eagle Ford gathering system, pursuant to that certain Membership Interest Purchase Agreement (together with the transactions contemplated by the Karnes County Contribution Agreement and the Giddings Purchase Agreement, the “Business Combination Agreements,” and the transactions contemplated thereby, the “Business Combination”), by and among Magnolia LLC and certain affiliates of EnerVest (the “Ironwood Sellers”).

The Company consummated the Business Combination for an aggregate consideration of approximately $1.2 billion in cash, 31.8 million shares of the Company’s Class A Common Stock, par value $0.0001 per share (the “Class A Common Stock”), and 83.9 million shares of the Company’s Class B Common Stock, par value $0.0001 per share (the “Class B Common Stock”), and a corresponding number of units in Magnolia LLC (the “Magnolia LLC Units”), as well as certain earnout rights payable in a combination of cash and additional equity securities in the Company. In connection with the Business Combination, Magnolia issued and sold 35.5 million shares of Class A Common Stock in a private placement to certain qualified institutional buyers and accredited investors for gross proceeds of $355.0 million (the “PIPE Investment”). In addition, Magnolia Operating and Magnolia Oil & Gas Finance Corp., a wholly owned subsidiary of Magnolia Operating (“Finance Corp.” and, together with Magnolia Operating, the “Issuers”), issued and sold $400.0 million aggregate principal amount of 6.0% Senior Notes due 2026 (the “2026 Senior Notes”). The proceeds of the PIPE Investment and the offering of 2026 Senior Notes were used to fund a portion of the cash consideration required to effect the Business Combination.

~~Business~~ Operations ~~and Strategy~~

Magnolia is an independent oil and natural gas company engaged in the acquisition, development, exploration, and production of oil, natural gas, and ~~NGL~~natural gas liquid (“NGL”) reserves. The Company’s oil and natural gas properties are located primarily in Karnes County and the Giddings Field in South Texas where the Company targets the Eagle Ford Shale and 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.

Basis of Presentation

InThe accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles ~~generally accepted~~ in the United States of America (“GAAP”)~~, the Company was the acquirer in the Business Combination~~ and the Karnes County Business, the Giddings Assets, and the Ironwood Interests were the acquirees. The Karnes County Business including, as applicable, its ownership of the Ironwood Interests, was deemed the “Predecessor” for periods prior to the Business Combination, and does not include the consolidation of the Company and the Giddings Assets. Although the Karnes County Contributors are not under common control, each were managed by the same managing general partner, EnerVest, and as such, these Predecessor financial statements have been presented on a combined basis for financial reporting purposes.

For the periods on or after the Business Combination, the Company, including the combination of the Karnes County Business, the Giddings Assets, and the Ironwood Interests, is the “Successor.” The financial statements and certain footnote presentations separate the Company’s presentations into two distinct periods, the period before the consummation of the Business Combination, which includes the period from January 1, 2018 to July 30, 2018 (the “Predecessor Period”) and the period after the Business Combination, which includes the period from July 31, 2018 to September 30, 2018 (the “2018 Successor Period”), and the three and nine months ended September 30, 2019 (the “2019 Successor Period”). The Business Combination was accounted for using the acquisition method of accounting and the Successor financial statements reflect a new basis of accounting that is based on the fair value of assets acquired and liabilities assumed. As a result of the inclusion of the Giddings Assets, the new basis of accounting, and certain other items that affect comparability, the Company’s financial information prior to the Business Combination is not comparable to its financial information subsequent to the Business Combination.

The assets, liabilities, revenues, expenses, and cash flows related to the Karnes County Business were not previously separately accounted for as a standalone legal entity and have been carved out of the overall assets, liabilities, revenues, expenses and cash flows from the Karnes County Contributors as appropriate. In addition, Parents’ Net Investment represents the Karnes County Contributors’ interest in the recorded net assets of the Karnes County Business and represents the cumulative net investment of the Karnes County Contributors’ in the Karnes County Business through the dates presented, inclusive of cumulative operating results.

The Karnes County Contributors utilized EnerVest’s centralized processes and systems for its treasury services and the Karnes County Business’ cash activity was commingled with other oil and gas assets that were not part of the Business Combination. As such, the net results of the cash transactions between the Karnes County Business and the Karnes County Contributors are reflected as Parents’ contributions and distributions in the accompanying Combined Statement of Changes in Parents’ Net Investment.

The Predecessor financial statements also include a portion of indirect costs for salaries and benefits, rent, accounting, legal services, and other expenses. In addition to the allocation of indirect costs, the financial statements reflect certain agreements executed by the Karnes County Contributors for the benefit of the Karnes County Business, including price risk management instruments. The allocations methodologies for significant allocated items include:

~~Corporate G&A~~ - EnerVest, as managing general partner of the Karnes County Contributors, provided management, accounting, and advisory services to the Karnes County Contributors in exchange for a quarterly management fee based on the Karnes County Contributors’ investor commitments, which were used, in part, to acquire the Karnes County Business as well as other oil and natural properties that were not part of the Business Combination. As such, the management fee was allocated to the Karnes County Business using a ratio of asset acquisitions value to total asset acquisitions completed by the Karnes County Contributors, for the Predecessor Period.

~~Derivatives~~ - Certain Karnes County Contributors entered into financial instruments to manage the Karnes County Business’ exposure to changes in commodity prices for the Karnes County Business as well as other oil and natural gas properties that were not part of the Business Combination, on a combined basis. The commodity derivative activity was allocated to the Karnes County Business using a ratio of expected crude oil and condensate, natural gas liquids (“NGLs”), and natural gas volumes produced, on an equivalents basis, by the Karnes County Business to the Karnes County Contributors’ total expected crude oil and condensate, NGLs, and natural gas produced, on an equivalents basis, for the Predecessor Period.

~~Indebtedness~~ - The Karnes County Business did not historically have outstanding indebtedness, but its oil and natural gas properties were collateral to various credit facilities held by the Karnes County Contributors and/or EnerVest. Amounts outstanding on these credit facilities have not been allocated to the Karnes County Business as they were not directly attributable to the Karnes County Business.

Management believes the allocation methodologies used are reasonable and result in an allocation of the indirect costs and other items to operate the Karnes County Business as if it were a stand-alone entity. These allocations, however, may not be indicative of the cost of future operations or the amount of future allocations. Direct costs were included at the historical amounts related to each reported period.

~~The accompanying unaudited interim consolidated and combined financial statements have been prepared in accordance with GAAP and in accordance with~~ the rules and regulations of the ~~SEC.~~Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, certain ~~information and~~ disclosures normally included in ~~annual financial statements prepared in accordance with GAAP~~an Annual Report on Form 10-K have been omitted. ~~Certain amounts have been reclassified to conform to the current period presentation resulting from the adoption of ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers.~~ ~~See~~ ~~Note 3 - Revenue Recognition~~ for additional information. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for the full year or any future periods. The ~~unaudited interim~~ consolidated financial statements ~~including the Predecessor financial statements,~~and related notes included in this Quarterly Report should be read in conjunction with the ~~information~~Company’s consolidated and combined financial statements and related notes included in ~~or incorporated by reference from~~ the Company’s Annual Report on Form 10-K for the ~~fiscal year~~period ended December 31, ~~2018.~~2019. Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated and combined financial statements included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2019.

In the opinion of management, all normal, recurring adjustments and accruals considered necessary to present fairly, in all material respects, the Company’s interim financial results, have been included. Operating results for the periods presented are not necessarily indicative of expected results for the full year.

Certain reclassifications of prior period financial statements have been made to conform to current reporting practices. The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of intercompany transactions and balances. The Company’s interests in oil and natural gas exploration and production ventures and partnerships are proportionately consolidated. The Company reflects a noncontrolling interest representing primarily the interest owned by the Karnes County Contributors through their ownership of Magnolia LLC Units in the consolidated financial statements. The noncontrolling interest is presented as a component of equity. See Note 11—Stockholders’ Equity for further discussion of the noncontrolling interest.

2. Summary of Significant Accounting Policies

As of ~~September 30, 2019,~~March 31, 2020, the Company’s significant accounting policies are consistent with those discussed in Note 2 - Summary of Significant Accounting Policies of its consolidated and combined financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, with the exception of ~~Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)”~~ Accounts Receivable and ~~as noted below.~~Allowance for Expected Credit Losses.

~~Leases~~Accounts Receivable and Allowance for Expected Credit Losses

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-02, Leases, which requires lessees to recognize a right-of-use asset and a lease liability on their balance sheet for all leases, including operating leases, with a term of greater than 12 months. In July 2018, the FASB issued ASU 2018-11, which adds a transition option permitting entities to apply the provisions of the new standard at its adoption date instead of the earliest comparative period presented in the consolidated financial statements. Under this transition option, comparative reporting would not be required, and the provisions of the standard would be applied prospectively to leases in effect at the date of adoption. The Company elected the package of transition practical expedients provided by the new standard that allow the Company to not reassess under the new standard its prior conclusions about lease identification, classification related to contracts that commenced prior to adoption, and to apply the standard prospectively to all new or modified land easements and rights-of-way. The Company has also elected a policy to not recognize right of use assets and lease liabilities related to short-term leases. The Company has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component.

Magnolia adopted this standard on January 1, 2019 and recognized right of use assets and lease liabilities for certain commitments primarily related to real estate, vehicles, and field equipment, while prior reporting periods are presented in accordance with historical accounting treatment under ASC Topic 840, Leases (“ASC 840”). The Company determines if an arrangement is a lease at inception. Operating leases are included in other long-term assets, other current liabilities, and other long-term liabilities in Magnolia’s consolidated balance sheet as of September 30, 2019. Operating lease right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Magnolia’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expenses for lease payments are recognized on a straight-line basis over the lease term. For more information, refer to ~~Note 10 - Leases.~~

~~Recent Accounting Pronouncements~~

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): ~~Measurement~~“Measurement of Credit Losses on Financial Instruments. The standards update requires the use of a forward-looking “expected loss” model as opposed to the current “incurred loss” model. This standard is effective for the Company in the first quarter of 2020. The Company is currently evaluating” For public business entities, the new standard became effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Magnolia adopted this standard on January 1, 2020. The standard changes the impairment model for most financial assets and ~~does not believe~~certain other instruments, including trade and other receivables, and requires entities to use a new forward-looking expected loss model that will result in earlier recognition of allowance for losses. The Company’s receivables consist mainly of trade receivables from commodity sales and joint interest billings due from owners on properties the ~~adoption will~~Company operates. The majority of these receivables have apayment terms of 30 days or less. For receivables due from joint interest owners, the Company generally has the ability to withhold future revenue disbursements to recover non-payment of joint interest billings. From an evaluation of the Company’s existing credit portfolio, historical credit losses have been de minimis and are expected to remain so in the future assuming no substantial changes to the business or creditworthiness of Magnolia’s business partners. As expected, there was no material impact on the Company’s unaudited consolidated financial ~~statements.~~statements or disclosures upon adoption of this ASU.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). The amendments in the update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The Company early adopted ASU 2018-15 effective April 1, 2019, with prospective application. The adoption did not have a material impact on the Company’s consolidated financial statements.

3. Revenue Recognition

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU and the associated subsequent amendments (collectively, “ASC 606”), superseded virtually all of the revenue recognition guidance in GAAP by requiring companies to recognize revenue using a five-step model. The core principle of the five-step model is that an entity will recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. Magnolia adopted this standard on December 31, 2018 for all Successor Periods using a modified retrospective approach.

There were no significant changes to the timing of revenue recognized for sales of production as a result of ASC 606. However, the new guidance resulted in certain changes to the classification of processing and other fees between revenue and gathering, transportation, and processing expense. The change also resulted in an increase to the production volumes and depreciation, depletion and amortization. The amounts included in the accompanying unaudited interim consolidated financial statements for the 2018 Successor Period were reclassified in order to conform to the current period presentation resulting from the adoption of ASC 606 and are considered immaterial. The Predecessor Period has not been restated and continues to be reported under the accounting standards in effect for that period.

~~Oil, Natural Gas, and NGL Revenues~~

Magnolia’s revenues include the sale of crude oil, natural gas, and NGLs. Oil, natural gas, and NGL sales are recognized as revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts. Performance obligations primarily comprise delivery of oil, natural gas, or NGLs at a delivery point, as negotiated within each contract. Each barrel of oil, million Btu of natural gas, gallon of NGLs, or other unit of measure is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated.

The Company’s oil production is primarily sold under market-sensitive contracts that are typically priced at a differential to the New York Mercantile Exchange (“NYMEX”) price or at purchaser posted prices for the producing area. For oil contracts, the Company generally records sales based on the net amount received.

For natural gas contracts, the Company generally records wet gas sales (which consists of natural gas and NGLs based on end products after processing) at the wellhead or inlet of the gas processing plant (i.e., the point of control transfer) as revenues net of gathering, transportation, and processing expenses if the processor is the customer and there is no redelivery of commodities to the Company at the tailgate of the plant. Conversely, the Company generally records residual natural gas and NGL sales at the tailgate of the plant (i.e., the point of control transfer) on a gross basis along with the associated gathering, transportation, and processing expenses if the processor is a service provider and there is redelivery of one or several commodities to the Company at the tailgate of the plant. The facts and circumstances of an arrangement are considered and judgment is often required in making this determination. For processing contracts that require noncash consideration in exchange for processing services, the Company recognizes revenue and an equal gathering, transportation, and processing expense for commodities transferred to the service provider.

~~Contract Balances~~

Customers are invoiced once the Company’s performance obligations have been satisfied. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 days. There are no judgments that significantly affect the amount or timing of revenue from contracts with customers. Accordingly, the Company’s product sales contracts do not give rise to material contract assets or contract liabilities.

The Company’s receivables consist mainly of trade receivables from ~~oil~~commodity sales and ~~natural gas purchasers and from~~ joint interest billings due from owners on properties the Company operates. Receivables from contracts with customers totaled ~~$113.2~~$68.7 million as of ~~September 30, 2019~~March 31, 2020 and ~~$100.1~~$100.4 million as of December 31, ~~2018. Accounts receivable are stated at~~2019. See Note 2 - Summary of Significant Accounting Policies for more information on the ~~historical carrying amount net of write-offs and~~Company’s allowance for doubtful accounts. The Company routinely assesses the collectability of all material trade and other receivables. The Company’s receivables consist mainly of receivables from oil and natural gas purchasers and from joint interest owners on properties the Company operates. The Company accrues a reserve on a receivable when, based on the judgment of management, it is probable that a receivable will not be collected and the amount of any reserve may be reasonably estimated. The Company had 0 allowance for doubtful accounts as of September 30, 2019 or December 31, 2018.expected credit losses policy.

~~Disaggregation of Revenue~~

The Company has concluded that disaggregating revenue by product type appropriately depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors and has reflected this disaggregation of revenue on the Company’s consolidated ~~and combined~~ statements of operations for all periods presented.

~~Performance Obligations~~

Performance obligations are satisfied at a point in time once control of the product has been transferred to the customer. The Company considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to: whether the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, the Company’s right to payment, and transfer of legal title.

The Company does not disclose the value of unsatisfied performance obligations for contracts as all contracts have either an original expected length of one year or less, or the entire future consideration is variable and allocated entirely to a wholly unsatisfied performance obligation.

4. Acquisitions

2020 Acquisitions ~~(Successor)~~

~~EnerVest Business Combination~~

~~As discussed in~~ ~~Note 1 - Description of Business and Basis of Presentation~~, on July 31, 2018, the Company consummated the Business Combination contemplated by the Business Combination Agreements. The Business Combination Agreements and the Business Combination were approved by the Company’s stockholders on July 17, 2018. At the closing of the Business Combination, the Karnes County Contributors received 83.9 million shares of the Company’s Class B Common Stock and an equivalent number of Magnolia LLC Units, which, together, are exchangeable on a 1-for-one basis for shares of the Company’s Class A Common Stock, subject to certain conditions; 31.8 million shares of Class A Common Stock; and approximately $911.5 million in cash. The Giddings Sellers received approximately $282.7 million in cash. The Ironwood Sellers received $25.0 million in cash in exchange for the Ironwood Interests. On March 29, 2019, Magnolia and EnerVest consummated the final settlement pursuant to the Contribution and Merger Agreement and as otherwise agreed to by the parties, with Magnolia receiving a net cash payment of $4.3 million and the Karnes County Contributors forfeiting to Magnolia 0.5 million shares of Class A Common Stock and 1.6 million shares of Class B Common Stock (and forfeiting a corresponding number of Magnolia LLC Units to Magnolia LLC).

The Business Combination has been accounted for using the acquisition method. The acquisition method of accounting is based on ASC 805 “Business Combinations,” and uses the fair value concepts defined in ASC 820. ASC 805 requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date by the Company.

~~Contingent Consideration~~

Pursuant to the Karnes County Contribution Agreement, for a period of five years following the Closing Date, the Karnes County Contributors were entitled to receive an aggregate of up to 13.0 million additional shares of Class A Common Stock or shares of Class B Common Stock (and a corresponding number of Magnolia LLC Units) based on certain EBITDA and free cash flow or stock price thresholds. As of December 31, 2018, the Company had met the defined stock price thresholds and, as a result, the Company had issued an aggregate of 3.6 million additional shares of Class A Common Stock and 9.4 million additional shares of Class B Common Stock (and a corresponding number of Magnolia LLC Units) to the Karnes County Contributors.

Pursuant to the Giddings Purchase Agreement, until December 31, 2021, the Giddings Sellers were entitled to receive an aggregate of up to $47.0 million in cash earnout payments based on certain net revenue thresholds. On September 28, 2018, the Company paid the Giddings Sellers a cash payment of $26.0 million to fully settle the earnout obligation.

~~The purchase consideration for the Business Combination was as follows:~~

(In thousands)

Purchase Consideration:

Cash consideration
$ 1,214,966
Stock consideration ⁽¹⁾

1,398,238
Fair value of contingent earnout purchase consideration⁽²⁾

169,000
Total purchase price consideration
$ 2,782,204

~~(1)~~

At closing of the Business Combination, the Karnes County Contributors received 83.9 million shares of Class B Common Stock (and a corresponding number of Magnolia LLC Units) and 31.8 million shares of Class A Common Stock. On March 29, 2019, Magnolia and EnerVest consummated the final settlement pursuant to the Contribution and Merger Agreement as agreed to by the parties, with the Karnes County Contributors forfeiting an aggregate of 2.1 million shares of Class A and Class B Common Stock to Magnolia (and a corresponding number of Magnolia LLC Units).

~~(2)~~

Pursuant to ASC 805, ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815, “Derivatives and Hedging,” the Karnes County earnout consideration was valued at fair value as of the Closing Date and was classified in stockholders’ equity. The Giddings earnout was valued at fair value as of the Closing Date and was classified as a liability. The fair value of the earnouts was determined using the Monte Carlo simulation valuation method based on Level 3 inputs in the fair value hierarchy.

~~The following table summarizes the allocation of the purchase consideration to the assets acquired and liabilities assumed on the acquisition date:~~

(In thousands)
Fair value of assets acquired
Accounts receivable $ 61,790
Other current assets 2,853
Oil and natural gas properties ⁽¹⁾
2,813,140
Ironwood equity investment 18,100
Total fair value of assets acquired 2,895,883
Fair value of liabilities assumed
Accounts payable and other current liabilities (65,908 )
Asset retirement obligations (34,132 )
Deferred tax liability (13,639 )
Fair value of net assets acquired $ 2,782,204

~~(1)~~

The fair value measurements of oil and natural gas properties and asset retirement obligations are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair values of oil and natural gas properties and asset retirement obligations were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation of oil and natural gas properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital rate.

The Company incurred $24.8 million in transaction costs associated with the Business Combination. The Company also incurred a total of $23.5 million of debt issuance costs in connection with the consummation of the Business Combination related to the establishment of the RBL Facility (as defined herein) and the issuance of the 2026 Senior Notes.

~~Unaudited Pro Forma Operating Results~~

~~The following unaudited pro forma combined financial information has been prepared as if the Business Combination and other related transactions had taken place on January 1, 2017.~~

The information reflects pro forma adjustments based on available information and certain assumptions that the Company believes are reasonable, including depletion of the Company’s fair-valued proved oil and gas properties, and the estimated tax impacts of the pro forma adjustments. Additionally, pro forma net income attributable to Class A Common Stock excludes $34.3 million of transaction related costs, $11.0 million related to a one-time purchase of a seismic license continuation, and a $6.7 million loss related to the settlement of the Giddings earnout obligation.

The pro forma combined financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the Business Combination taken place on January 1, 2017; furthermore, the financial information is not intended to be a projection of future results.

(Unaudited Pro Forma)
(In thousands)

Three Months Ended
September 30, 2018

Nine Months Ended
September 30, 2018
Total revenues $ 267,659
$ 723,768
Net income attributable to Class A Common Stock 57,891
151,316
Net income per share - basic 0.39
1.02
Net income per share - diluted 0.38
0.98

~~Non-Compete~~

On the Closing Date, the Company and EnerVest, separate and apart from the Business Combination, entered into a non-compete agreement (the “Non-Compete”) restricting EnerVest and certain of its affiliates from competing with the Company in certain counties comprising the Eagle Ford Shale following the Closing Date. An affiliate of EnerVest will have the right to receive 4.0 million shares of Class A Common Stock issuable in 2 tranches of 2.0 million shares in two and one half and four years from the Closing Date provided EnerVest does not compete with Magnolia in the Eagle Ford Shale until the later of July 31, 2022 or the date the Services Agreement with EnerVest Operating, LLC (“EVOC”), a wholly owned subsidiary of EnerVest, (the “Services Agreement”), is terminated. For more discussion on the Non-Compete, refer to ~~Note 7 - Intangible Assets~~.

~~Harvest Acquisition~~

~~On August 31, 2018,~~February 21, 2020, the Company completed the acquisition of ~~substantially all of Harvest Oil & Gas Corporation’s South~~certain non-operated oil and natural gas assets located in Karnes and DeWitt Counties, Texas, ~~assets~~ for approximately ~~$133.3~~$71.3 million in cash, ~~and~~ ~~4.2 million~~ ~~shares of Class A Common Stock for a total consideration of~~ ~~$191.5 million. The acquisition added an undivided working interest across a portion of Magnolia’s existing Karnes County Assets and all of the Company’s existing Giddings Assets.~~ ~~On March 14, 2019, Magnolia consummated the final settlement with Harvest receiving a cash payment of $1.4 million.~~subject to customary closing adjustments. The transaction was accounted for as ~~a business combination.~~

~~The following table summarizes the allocation of the purchase consideration to the assets acquired and liabilities assumed:~~

(In thousands)
Fair value of assets acquired
Other current assets $ 1,290
Oil and natural gas properties ⁽¹⁾
201,337
Total fair value of assets acquired 202,627
Fair value of liabilities assumed
Asset retirement obligations and other current liabilities (9,666 )
Fair value of net assets acquired $ 192,961
an asset acquisition.

~~(1)~~

~~Certain Other~~2019 Acquisitions

On May 31, 2019, the Company completed the acquisition of certain oil and natural gas assets located in the Company’s Karnes County Assets for approximately $36.3 million in cash ~~subject to customary closing adjustments,~~ and approximately 3.1 million shares of the Company’s Class A Common Stock. The transaction was accounted for as an asset acquisition.

On February 5, 2019, Magnolia Operating formed a joint venture, Highlander Oil & Gas Holdings LLC (“Highlander”), to complete the acquisition of a 72% working interest in the Eocene-Tuscaloosa Zone, Ultra Deep Structure gas well located in St. Martin Parish, Louisiana and 31.1 million royalty trust units in the Gulf Coast Ultra Deep Royalty Trust from McMoRan

Oil & Gas, LLC. Highlander paid cash consideration of $50.9 million for such interests. MGY Louisiana LLC, a wholly owned subsidiary of Magnolia Operating, holds approximately 85% of the units in Highlander. The transaction was accounted for as an asset acquisition.

~~Acquisitions (Predecessor)~~

~~Subsequent GulfTex Acquisition~~

On March 1, 2018, the Predecessor acquired certain oil and natural gas properties located in the Eagle Ford Shale from GulfTex Energy III, L.P. and GulfTex Energy IV, L.P. for an adjusted purchase price of approximately $150.1 million, net of customary closing adjustments (the “Subsequent GulfTex Acquisition”).

~~The recognized fair value of identifiable assets and acquired liabilities assumed in connection with the Subsequent GulfTex Acquisition, is as follows:~~

(In thousands)
Purchase price allocation:
Accounts receivable $ 10,501
Proved oil and natural gas properties 118,572
Unproved oil and natural gas properties 22,802
Accounts payable and accrued liabilities (1,679 )
Asset retirement obligations (57 )
$ 150,139

5. ~~Derivative Instruments and Hedging Activities (Predecessor)~~

The Company’s activities expose it to risks associated with changes in the market price of oil, natural gas, and NGLs. As such, future earnings are subject to fluctuation due to changes in the market price of oil, natural gas, and NGLs. The Company has not engaged in any hedging activities and does not expect to engage in any hedging activities with respect to the market risk to which the Company is exposed. The Karnes County Contributors, on behalf of the Predecessor, used derivatives to reduce the risk of volatility in the prices of oil, natural gas, and NGLs and their policies did not permit the use of derivatives for speculative purposes.

The Predecessor elected not to designate any of its derivatives as hedging instruments. Accordingly, changes in the fair value of the Predecessor's derivatives were recorded immediately to earnings as “Gain (loss) on derivatives, net” in the combined statements of operations. During the periods from July 1 through July 30, 2018 and January 1 through July 30, 2018, the Predecessor incurred a gain on derivatives of $3.9 million and a loss on derivatives of $18.1 million, respectively.

6. Fair Value Measurements

Certain of the Company’s assets and liabilities are carried at fair value and measured either on a recurring or ~~non-recurring~~nonrecurring basis. The Company’s fair value measurements are based either on actual market data or assumptions that other market participants would use in pricing an asset or liability in an orderly transaction, using the valuation hierarchy prescribed by GAAP under ASC 820.

The three levels of the fair value hierarchy under ASC 820 are as follows:

Level I - Quoted prices (unadjusted) in active markets for identical investments at the measurement date are used.

Level II - Pricing inputs are other than quoted prices included within Level I that are observable for the investment, either directly or indirectly. Level II pricing inputs include quoted prices for similar investments in active markets, quoted prices for identical or similar investments in markets that are not active, inputs other than quoted prices that are observable for the investment, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level III - Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. The inputs used in determination of fair value require significant judgment and estimation.

Fair ~~Values - Recurring (Predecessor)~~

~~The Predecessor’s derivatives consisted~~Value of over-the-counter contracts that were not traded on a public exchange. As the fair value of these derivatives was based on inputs using market prices obtained from independent brokers or determined using quantitative models that used as their basis readily observable market parameters that are actively quoted and can be validated through external sources, including third-party pricing services, brokers and market transactions, the Predecessor categorized these derivatives as Level 2. The Predecessor valued these derivatives using the income approach using inputs such as the forward curve for commodity prices based on quoted market prices and prospective volatility factors related to changes in the forward curves. Estimates of fair value were determined at discrete points in time based on relevant market data. Furthermore, fair values were adjusted to reflect the credit risk inherent in the transaction, which may have included amounts to reflect counterparty credit quality and/or the effect of the Predecessor’s creditworthiness.

~~Fair Values - Nonrecurring~~

The fair value measurements of assets acquired and liabilities assumed in a business combination are measured on a nonrecurring basis on the acquisition date using an income valuation technique based on inputs that are not observable in the market, and therefore, represent Level 3 inputs. Significant inputs to the valuation of acquired oil and gas properties includes estimates of: (i) reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices, including price differentials; (v) future cash flows; and (vi) a market participant-based weighted average cost of capital rate. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation. Refer to ~~Note 4 - Acquisitions~~ ~~for additional information.~~

~~Deemed Dividend~~

In July 2019, the Company issued an aggregate of 9.2 million shares of Class A Common Stock in exchange for all of its warrants. The difference in fair value between the Class A Common Stock issued and the warrants exchanged was recorded as a non-cash deemed dividend for the incremental value provided to the holders of the warrants. The fair value of the non-cash deemed dividend related to the warrant exchange was determined based on unadjusted quoted prices in an active market, which are considered a Level 1 input in the fair value hierarchy. Refer to ~~Note 11 - Stockholders’ Equity~~ ~~for additional information.~~Financial Instruments

Debt Obligations

The carrying value and fair value of the financial instrument that is not carried at fair value in the accompanying consolidated balance sheet ~~as of September 30,~~at March 31, 2020 and December 31, 2019 is as follows:


	September 30, 2019				March 31, 2020				December 31, 2019
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt	$	389,528	$	404,000	$	390,147	$	228,000	$	389,835	$	412,000

The fair value of the 2026 Senior Notes at ~~September 30,~~March 31, 2020 and December 31, 2019 was based on unadjusted quoted prices in an active market, which are considered a Level 1 input in the fair value hierarchy.

The Company has other financial instruments consisting primarily of receivables, payables, and other current assets and liabilities that approximate fair value due to the nature of the instrument and their relatively short maturities. Non-financial assets and liabilities initially measured at fair value include assets acquired and liabilities assumed in ~~the~~ business combinations and asset retirement obligations.

Nonrecurring Fair Value Measurements

The Company applies the provisions of the fair value measurement standard on a nonrecurring basis to its non-financial assets and liabilities, including oil and natural gas properties. These assets and liabilities are not measured at fair value on a recurring basis but are subject to fair value adjustments when facts and circumstances arise that indicate a need for remeasurement.

During the first quarter of 2020, Magnolia recorded impairments of $1.9 billion related to proved and unproved properties as a result of the sharp decline in commodity prices. Proved property impairment of $1.4 billion is included in “Impairment of oil and natural gas properties” and unproved property impairment of $0.6 billion is included in “Exploration expense” on the Company’s consolidated statement of operations for the three months ended March 31, 2020. Proved and unproved properties that were impaired had aggregate fair values as of the most recent date of impairment for the three months ended March 31, 2020, of $0.8 billion and $0.3 billion, respectively. The fair values of oil and natural gas properties were measured using the income approach based on inputs that are not observable in the market, and therefore, represent Level 3 inputs. The Company calculated the estimated fair values of its oil and natural gas properties using a discounted future cash flow model. Significant inputs associated with the calculation of discounted future net cash flows include estimates of future commodity prices based on NYMEX strip pricing adjusted for price differentials, estimates of proved oil and natural gas reserves and risk adjusted probable and possible reserves, estimates of future expected operating and capital costs, and a market participant based weighted average cost of capital of 10% for proved property impairments and 12% for unproved property impairments.

7.6. Intangible Assets

Non-Compete Agreement

On ~~the Closing Date,~~July 31, 2018, the Company and EnerVest, separate and apart from the Business Combination, entered into ~~the Non-Compete,~~a non-compete agreement (the “Non-Compete”), which prohibits EnerVest and certain of its affiliates from competing with the Company in the Eagle Ford Shale (the “Market Area”) until the later of July 31, 2022 or the date the Services Agreement is terminated. Under the Non-Compete, an affiliate of EnerVest will have the right to receive 4.0 million shares of Class A Common Stock in 2 tranches of 2.0 million shares in two and one half and four years from ~~the Closing Date~~July 31, 2018 provided EnerVest does not compete in the Market Area.

The Company recorded an estimated cost of $44.4 million for the Non-Compete as intangible assets on the Company’s consolidated balance sheet. These intangible assets have a definite life and are subject to amortization utilizing the straight-line method over their economic life, currently estimated to be two and one half to four years. The Company includes the amortization in “Amortization of intangible assets” on the Company’s consolidated ~~statement~~statements of operations.



(In thousands)	March 31, 2020			December 31, 2019
Non-compete intangible assets	$	44,400		$	44,400
Accumulated amortization	(24,175		)	(20,549		)
Intangible assets, net	$	20,225		$	23,851
Weighted average amortization period (in years)	3.25			3.25

(In thousands) September 30, 2019
Non-compete intangible assets $ 44,400
Accumulated amortization (16,923 )
Intangible assets, net $ 27,477
Weighted average amortization period (in years) 3.25
7. Other Current Liabilities

The following table provides detail of the Company’s other current liabilities for the periods presented:



(In thousands)	March 31, 2020		December 31, 2019
Accrued capital expenditures	$	47,903	$	40,722
Other	36,643		55,058
Total other current liabilities	$	84,546	$	95,780

8. ~~Income Taxes~~

The Company estimates its annual effective tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which Magnolia and its subsidiaries operate. The tax effects of statutory rate changes, significant unusual or infrequent items, and certain changes in the assessment of the realizability of deferred tax assets are excluded from the determination of the Company’s annual effective tax rate as such items are recognized as discrete items in the period in which they occur.

Income tax expense recorded for the period is based on applying an estimated annual effective income tax rate to the net income from January 1, 2019 through September 30, 2019. There were no significant unusual or infrequently occurring items that are required to be recorded as discrete items as of September 30, 2019. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the Company’s expected operating income for the year, projections of the proportion of income earned and taxed in various jurisdictions, the effect of noncontrolling interest, permanent and temporary differences, and the likelihood of recovering deferred tax assets in the current year. The accounting estimates used to compute the income tax expense may change as new events occur, more experience is obtained, additional information becomes known, or as the tax environment changes. For the three and nine months ended September 30, 2019, the Company incurred U.S. federal income tax expense of approximately $3.1 million and $11.6 million, respectively. The Company’s annual effective tax rate for the three and nine months ended September 30, 2019 was 16.9% and 14.9%, respectively. The primary differences between the annual effective tax rate and the statutory rate of 21.0% are income attributable to noncontrolling interest and state taxes.

~~The Company’s income tax provision consists of the following components:~~

Successor Predecessor
(In thousands) Three Months Ended
September 30, 2019 Nine Months Ended
September 30, 2019 July 31, 2018
Through
September 30, 2018 July 1, 2018
Through
July 30, 2018 January 1, 2018 Through
July 30, 2018
Current:
    Federal $ —
$ —
$ —
$ —
$ —
    State 115
684
45
631
1,461
115
684
45
631
1,461
Deferred:
    Federal 3,135
11,588
3,493
—
—
    State 279
177
—
135
324
3,414
11,765
3,493
135
324
Total provision $ 3,529
$ 12,449
$ 3,538
$ 766
$ 1,785

The Company is subject to U.S. federal income tax, the margin tax in the state of Texas, and Louisiana corporate income tax. NaN amounts have been accrued for income tax uncertainties or interest and penalties as of September 30, 2019. The Company is currently not aware of any issues under review that could result in significant payments, accruals, or material deviation from its position. The Company’s tax years since its formation remain subject to possible income tax examinations by its major taxing authorities for all periods.

9. Long Term Debt

The Company’s debt is comprised of the following:


(In thousands)	September 30, 2019			March 31, 2020			December 31, 2019
Revolving credit facility	$	—		$	—		$	—
6.0% Senior Notes due 2026	400,000			400,000			400,000
Total long-term debt	400,000			400,000			400,000

Less: Unamortized deferred financing cost	(10,472		)	(9,853		)	(10,165		)
Total debt, net	$	389,528		$	390,147		$	389,835

Credit Facility

In connection with the consummation of the Business Combination, Magnolia Operating entered into ~~a senior secured reserve-based revolving credit facility (the “RBL Facility”)~~the RBL Facility among Magnolia Operating, as borrower, Magnolia Intermediate, as its holding company, the banks, financial institutions, and other lending institutions from time to time party thereto, as lenders, the other parties from time to time party thereto and Citibank, N.A., as administrative agent, collateral agent, issuing bank, and swingline lender, providing for maximum commitments in an aggregate principal amount of $1.0 billion with a letter of credit facility with a $100.0 million sublimit. The borrowing base as of ~~September 30, 2019~~March 31, 2020 was $550.0 million. In April 2020, the borrowing base capacity was reduced to $450.0 million. The RBL Facility is guaranteed by certain parent companies and subsidiaries of Magnolia LLC and is collateralized by certain of Magnolia Operating’s oil and natural gas properties and has a borrowing base subject to semi-annual redetermination.

Borrowings under the RBL Facility bear interest, at Magnolia Operating’s option, at a rate per annum equal to either the LIBOR rate or the alternative base rate plus the applicable margin. Additionally, Magnolia Operating is required to pay a commitment fee quarterly in arrears in respect of unused commitments under the RBL Facility. The applicable margin and the commitment fee rate are calculated based upon the utilization levels of the RBL Facility as a percentage of the borrowing base then in effect.

The RBL Facility contains certain affirmative and negative covenants customary for financings of this type, including compliance with a leverage ratio of less than 4.00 to 1.00 and, if the leverage ratio is in excess of 3.00 to 1.00, a current ratio of greater than 1.00 to 1.00. As of ~~September 30, 2019,~~March 31, 2020, the Company was in compliance with all covenants under the RBL Facility.

Deferred financing costs incurred in connection with securing the RBL Facility were $11.7 million, which are amortized on a straight-line basis over a period of five years and included in “Interest expense, net” in the Company’s consolidated ~~statement~~statements of operations. ~~During the three and nine months ended September 30, 2019, the~~The Company recognized interest expense of $1.1 million during the three months ended March 31, 2020 and ~~$3.4 million, respectively,~~2019 related to the RBL Facility. The unamortized portion of the deferred financing costs are included in “Deferred financing costs, net” on the accompanying ~~unaudited~~ consolidated balance sheet as of ~~September 30, 2019.~~March 31, 2020.

The Company did 0t have any outstanding borrowings under its RBL Facility as of ~~September 30, 2019.~~March 31, 2020.

2026 Senior Notes

On ~~the Closing Date,~~July 31, 2018, the Issuers issued and sold $400.0 million aggregate principal amount of 2026 Senior Notes. The 2026 Senior Notes were issued under the Indenture, dated as of ~~the Closing Date~~July 31, 2018 (the “Indenture”), by and among the Issuers and Deutsche Bank Trust Company Americas, as trustee. The 2026 Senior Notes are guaranteed on a senior unsecured basis by the Company, Magnolia Operating, and Magnolia Intermediate and may be guaranteed by certain future subsidiaries of the Company. The 2026 Senior Notes will mature on August 1, 2026 and bear interest at the rate of 6.0% per annum.

At any time prior to August 1, 2021, the Issuers may, on any one or more occasions, redeem all or a part of the 2026 Senior Notes at a redemption price equal to 100% of the principal amount of the 2026 Senior Notes redeemed, plus a “make whole” premium on accrued and unpaid interest, if any, to, but excluding, the date of redemption. After August 1, 2021, the Issuers may redeem all or a part of the 2026 Senior Notes based on principal plus a set premium, as set forth in the Indenture, including any accrued and unpaid interest.

The Company incurred $11.8 million of deferred financing costs related to the issuance of the 2026 Senior Notes, which were ~~capitalized,~~capitalized. These costs are amortized using the effective interest method over the term of the 2026 Senior Notes and are included in “Interest expense, net” in the Company’s consolidated ~~statement~~statements of operations. The unamortized portion of the deferred financing costs is included as a reduction to the carrying value of the 2026 Senior Notes, which have been recorded as ~~Long-term~~“Long-term debt, ~~net~~net” on the consolidated balance sheet as of ~~September 30, 2019. During the three and nine months ended September 30, 2019, the~~March 31, 2020. The Company recognized interest expense of $6.3 million for the three months ended March 31, 2020 and ~~$18.9 million, respectively,~~2019 related to the 2026 Senior Notes.

Affiliate Guarantors

~~Certain~~The Company, Magnolia LLC (together with the Company, the “Parent Guarantors”), and the direct parent company of Magnolia Operating and certain subsidiaries of ~~the Company~~Magnolia Operating are guarantors under the terms of its 2026 Senior Notes and RBL Facility. The ~~parent guarantees~~Parent Guarantors may be released upon the request of Magnolia Operating. Magnolia’s consolidated financial statements reflect the financial position of these subsidiary guarantors. As the parent company, Magnolia has no independent operations. The guarantees are full and unconditional (except for customary release provisions) and joint and several. There are restrictions on dividends, distributions, loans, or other transfers of funds from the subsidiary guarantors to the Company.

~~10. Leases~~9. Commitments and Contingencies

Magnolia’s leases primarily consist of real estate, vehicles, and field equipment. The Company’s leases have remaining lease terms of up to 8 years, some of which include options to renew or terminate the lease. The exercise of lease renewal options is at the Company’s sole discretion. Magnolia’s lease agreements do not contain any residual value guarantees or restrictive covenants.Legal Matters

~~As most~~The Company is involved in disputes or legal actions in the ordinary course of ~~Magnolia’s leases do not provide an implicit rate,~~business. For example, certain of the Karnes County Contributors and the Company ~~uses~~have been named as defendants in a lawsuit where the plaintiffs claim to be entitled to a minority working interest in certain Karnes County Assets. The litigation is in the pre-trial stage. The exposure related to this litigation is currently not reasonably estimable. The Karnes County Contributors retained all such liability in connection with the Business Combination. At March 31, 2020, the Company does not believe the outcome of any such disputes or legal actions will have a material effect on its ~~incremental borrowing rate based~~consolidated statements of operations, balance sheet, or cash flows. NaN amounts were accrued with respect to outstanding litigation at March 31, 2020 or March 31, 2019.

Environmental Matters

The Company, as an owner or lessee and operator of oil and natural gas properties, is subject to various federal, state, local laws, and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the ~~information available at commencement date~~lessee under an oil and natural gas lease for the cost of pollution clean-up resulting from operations and subject the lessee to liability for pollution damages. In some instances, the Company may be directed to suspend or cease operations in ~~determining~~ the ~~present value of lease payments.~~affected area. The Company ~~used~~maintains insurance coverage, which it believes is customary in the ~~incremental borrowing rate on January 1, 2019, for operating leases that commenced prior to that date.~~industry, although the Company is not fully insured against all environmental risks.

Risks and Uncertainties

(In thousands) September 30, 2019
Operating Leases
     Operating lease assets $ 4,772

     Operating lease liabilities - current $ 2,724
     Operating lease liabilities - long-term 2,039
Total operating lease liabilities $ 4,763

Weighted average remaining lease term (in years) 2.0
Weighted average discount rate 3.8 %

~~For~~The Company’s revenue, profitability, and future growth are substantially dependent upon the ~~three~~prevailing and ~~nine months ended September 30, 2019, respectively, the Company incurred $0.9 million~~future prices for oil and ~~$2.1 million of lease costs for operating leases included~~natural gas, which depend on numerous factors beyond the Company’s ~~balance sheet, $5.9 million~~control such as overall oil and ~~$21.1 million for short-term lease costs~~natural gas production and ~~$0.6 million~~inventories in relevant markets, economic conditions, the global political environment, regulatory developments, and ~~$2.5 million for variable lease costs. Cash paid for amounts included~~competition from other energy sources. Oil and natural gas prices historically have been volatile and may be subject to significant fluctuations in the ~~measurement~~future.

The coronavirus disease 2019 (“COVID-19”) pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the oil and natural gas industry. Oil demand has significantly deteriorated as a result of ~~lease liabilities~~the virus outbreak and corresponding preventative measures taken around the world to mitigate the spread of the virus. Furthermore, in the midst of the ongoing COVID-19 pandemic, the competition between Russia and Saudi Arabia for crude oil market share caused a substantial increase in supply. The implications of these unprecedented events continue to unfold and may have further negative effects to the Company’s business, such as production curtailment, reduced storage capacity, and reductions to its operating ~~cash flows from operating leases for the nine months ended September 30, 2019 is $2.0 million.~~plans.

~~Maturities of lease liabilities as of September 30, 2019 under the scope of ASC 842 are as follows:~~

(In thousands)
Maturity of Lease Liabilities⁽¹⁾
Operating Leases
2019 (remaining) $ 771
2020 2,653
2021 1,170
2022 165
2023 98
After 2023 91
Total lease payments $ 4,948
Less: Interest (185 )
Present value of lease liabilities $ 4,763


~~(1)~~	As of December 31, 2018, minimum future contractual payments for long-term operating leases under the scope of ASC 840 were $881 thousand in 2019, $646 thousand in 2020, $198 thousand in 2021, $14 thousand in 2022, $15 thousand in 2023 and $63 thousand thereafter.

10. Income Taxes

The Company estimates its annual effective tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which it operates. On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).The CARES Act includes several significant business tax provisions that, among other things, allow businesses to carry back net operating losses (“NOL”) arising in 2018, 2019, and 2020 to the five prior tax years. Applying the NOL carryback provision results in an income tax benefit of $1.2 million in the first quarter of 2020 and the difference in the U.S. federal rate of 35% in 2017 compared to 21% in 2018 and thereafter results in a discrete benefit to the tax provision of approximately $0.5 million for the period ended March 31, 2020.

The income tax expense or benefit recorded for the period is based on applying an estimated annual effective income tax rate to the net income or loss for the quarters ended March 31, 2020 and March 31, 2019. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the Company’s expected operating income for the year, projections of the proportion of income earned and taxed in various jurisdictions, the effect of noncontrolling interest, permanent and temporary differences, and the likelihood of recovering deferred tax assets in the current year. The accounting estimates used to compute the income tax expense or benefit may change as new events occur, more experience is obtained, additional information becomes known, or as the tax environment changes. The Company’s annual effective tax rate for the three months ended March 31, 2020 and 2019 was 3.8% and 14.2%, respectively. The primary differences between the annual effective tax rate and the statutory rate of 21.0% are income attributable to noncontrolling interest, the recognition of a valuation allowance on federal and state deferred tax assets, and state taxes. During the first quarter of 2020, Magnolia’s effective tax rate was primarily impacted by the recognition of valuation allowances for its deferred tax assets from non-cash impairments of the carrying value of the Company’s oil and natural gas properties and the net deferred tax assets generated in this period.

During the first quarter of 2020, the Company moved from a net deferred tax liability position to an estimated net deferred tax asset position of $208.8 million resulting primarily from oil and natural gas impairments. Management assessed whether it is more-likely-than-not that it will generate sufficient taxable income to realize its deferred income tax assets, including the investment in partnership and net operating loss carryforwards. In making this determination, the Company considered all available positive and negative evidence and made certain assumptions. The Company considered, among other things, its deferred tax liabilities, the overall business environment, its historical earnings and losses, current industry trends, and its outlook for future years. As of March 31, 2020, the Company assessed the realizability of the deferred tax assets and recorded a full valuation allowance of $208.8 million.

The Company’s income tax provision consists of the following components:



(In thousands)	Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
Current:
Federal	$	(1,172	)	$	177
State	—			183
	(1,172		)	360
Deferred:
Federal	(68,877		)	3,361
State	(5,777		)	54
	(74,654		)	3,415
Total provision	$	(75,826	)	$	3,775

The Company is subject to U.S. federal income tax, the margin tax in the state of Texas, and Louisiana corporate income tax. NaN amounts have been accrued for income tax uncertainties or interest and penalties as of March 31, 2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals, or material deviation from its position. The Company’s tax years since its formation remain subject to possible income tax examinations by its major taxing authorities for all periods.

11. Stockholders’ Equity

Class A Common Stock

~~In connection with the closing of the Business Combination, the Company increased the number of authorized~~At March 31, 2020, there were 168.5 million shares of Class A Common Stock ~~to 1.3 billion. At September 30, 2019, there were 168.3~~issued and 166.5 million shares ~~issued and 167.3 million shares outstanding~~ of Class A Common ~~Stock.~~Stock outstanding. The holders of Class A Common Stock and Class B Common Stock vote together as a single class on all matters and are entitled 1 vote for each share held.

There is no cumulative voting with respect to the election of directors, which results in the holders of more than 50% of the shares being able to elect all of the directors, subject to voting obligations under the Stockholder Agreement (defined ~~below)~~herein). In the event of a liquidation, dissolution, or winding up of the Company, the common stockholders are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of stock, if any, having preference over the common stock. The holders of the Class A Common Stock have no preemptive or other subscription rights, and there are no sinking fund provisions applicable to such shares.

Class B Common Stock

~~In connection with the closing of the Business Combination, the Company authorized 225.0 million shares of Class B Common Stock.~~ At ~~September 30, 2019,~~March 31, 2020, there were ~~91.8~~85.8 million shares of Class B Common Stock issued and outstanding. Holders of Class B Common Stock vote together as a single class with holders of Class A Common Stock on all matters properly submitted to a vote of the stockholders. The holders of Class B Common Stock generally have the right to exchange all or a portion of their Class B Common Stock, together with an equal number of Magnolia LLC Units, for the same number of shares of Class A Common Stock or, at Magnolia LLC’s option, an equivalent amount of cash. Upon the future redemption or exchange of Magnolia LLC Units held by any holder of Class B Common Stock, a corresponding number of shares of Class B Common Stock held by such holder of Class B Common Stock will be canceled. In the event of a liquidation, dissolution, or winding up of the Company, the common stockholders are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of stock, if any, having preference over the common stock. The holders of the Class B Common Stock have no preemptive or other subscription rights, and there are no sinking fund provisions applicable to such shares.

~~Warrants~~

On June 7, 2019, the Company commenced an exchange offer (the “Offer”) and consent solicitation (the “Consent Solicitation”), pursuant to which the Company (1) offered to holders of its warrants the opportunity to receive 0.29 shares of Class A Common Stock in exchange for each warrant validly tendered and (2) solicited the consent from the holders of its warrants to approve an amendment to the Company’s existing warrant agreement, by and between the Company and Continental Stock Transfer & Trust Company, to amend the agreement to provide the Company with the right to require any holder of the Company’s warrants to exchange their warrants for Class A Common Stock at an exchange ratio of 0.261 shares of Class A Common Stock for each whole warrant (the “Warrant Amendment”). Pursuant to the Offer, certain of the Company’s warrantholders, including directors and executive officers, agreed to tender their warrants and provide the corresponding consent to the Warrants Amendment in the Consent Solicitation by entering into the Tender and Support Agreement (as defined below).

~~The Offer and Consent Solicitation expired on July 5, 2019.~~In connection with the closing of the Offer on July 10, 2019 and the subsequent exercise of the Company’s right to exchange all remaining warrants on July 25, 2019, the Company issued an aggregate of 9.2 million shares of Class A Common Stock in exchange for all of its 31.7 million warrants outstanding, which consisted of 21.7 million public warrants and 10.0 million private placement warrants.

As the fair value of the warrants exchanged in the Offer was less than the fair value of the Class A Common Stock issued, the company recorded a non-cash deemed dividend of $2.8 million for the incremental value provided to the warrant holders. The fair value of warrants and the Class A Common Stock was determined using unadjusted quoted prices in an active market, a Level 1 fair value input. The Company capitalized $2.2 million of expenses related to the Offer within additional paid-in capital.

Share Repurchase Program

On August 5, 2019, the Company’s ~~Board~~board of ~~Directors~~directors authorized a share repurchase program of up to 10 million ~~shares.~~shares of Class A Common Stock. The program does not require purchases to be made within a particular timeframe. As of ~~September 30, 2019,~~March 31, 2020, the Company had repurchased ~~950 thousand~~2.0 million shares ~~of Class A Common Stock~~under the plan at a ~~weighted average price of $10.23, for a total~~ cost of ~~approximately $9.7~~$16.8 million.

Noncontrolling Interest

Noncontrolling interest in Magnolia’s consolidated subsidiaries include amounts attributable to Magnolia LLC Units that were issued to the Karnes County Contributors in connection with the Business Combination. The noncontrolling interest percentage is affected by various equity transactions such as issuances of Class A Common Stock, ~~and~~ the ~~conversion~~exchange of Class B Common Stock to(and corresponding Magnolia LLC Units) for Class A Common ~~Stock.~~Stock, or cancellation of Class B Common Stock (and corresponding Magnolia LLC Units). As of ~~September 30, 2019,~~March 31, 2020, Magnolia owned approximately ~~64.6%~~66% of the interest in Magnolia LLC and the noncontrolling interest was ~~35.4%~~34%. In the first quarter of 2019, Magnolia Operating formed Highlander as a joint venture ~~in which~~where MGY Louisiana LLC, a wholly owned subsidiary of Magnolia Operating, holds approximately 85% of the units in Highlander, with the remaining 15% attributable to noncontrolling interest.

12. ~~Supplemental Cash Flow Information~~

~~Supplemental cash flow disclosures are presented below:~~

Successor Predecessor
(In thousands)
Nine Months
Ended
September 30, 2019

July 31, 2018
Through
September 30, 2018
January 1, 2018 Through
July 30, 2018
Supplemental non-cash operating activity:
Cash paid for income taxes $ 390
$ —
$ 336
Cash paid for interest 25,687
350
—
Supplemental non-cash investing and financing activity:
Accruals or liabilities for capital expenditures $ 37,241
$ 45,242
$ 38,028
Contingent Consideration issued in Business Combination —
149,700
—
Non-Compete agreement entered into in Business Combination —
44,400
—
Equity issuances in connection with acquisitions 33,693
1,481,695
—
Non-cash deemed dividend related to warrant exchange 2,763
—
—
Supplemental non-cash lease operating activity:
Right-of-use assets obtained in exchange for operating lease obligations $ 6,720
—
—

~~13.~~ Stock Based Compensation

On October 8, 2018, the Company’s board of directors adopted the “Magnolia Oil & Gas Corporation Long Term Incentive Plan” (the “Plan”), effective as of July 17, 2018. A total of 11.8 million shares of Class A Common Stock have been authorized for issuance under the Plan. The Company ~~granted employees~~grants stock based compensation awards in the form of restricted stock units (“RSUs”) and performance stock units (“PSUs”) to eligible employees and directors to enhance the Company and its affiliates’ ability to attract, retain, and motivate persons who make important contributions to the Company and its affiliates by providing these individuals with equity ownership opportunities. Shares issued as a result of awards granted under the Plan are generally new shares of Class A Common Stock.

Stock based compensation expense is recognized net of forfeitures within ~~general~~“General and administrative ~~expense~~expenses” on the consolidated ~~statement~~statements of operations and was ~~$2.8~~$2.9 million and ~~$8.4~~$2.4 million for the three ~~and nine~~ months ended ~~September 30, 2019.~~March 31, 2020 and 2019, respectively. The Company has elected to account for forfeitures of awards granted under the Plan as they occur in determining compensation expense.

Restricted Stock Units

The Company grants service-based RSU awards to employees and non-employee directors, which generally vest ratably over a three-year service ~~period.~~period, in the case of awards to employees, and vest in full after one year, in the case of awards to directors. RSUs represent the right to receive shares of Class A Common Stock at the end of the vesting period equal to the number of RSUs ~~granted.~~that vest. RSUs are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ~~is no longer~~ceases to be an employee or director of the Company for any reason prior to vesting of the award. Compensation expense for the service-based RSU awards is based upon the grant date market value of the award and such costs are recorded on a straight-line basis over the requisite service period for each separately vesting portion of the award, as if the award was, in-substance, multiple awards. Unrecognized compensation expense related to unvested ~~restricted shares~~RSUs at ~~September 30, 2019~~March 31, 2020 was ~~$12.0~~$13.6 million, which the Company expects to recognize over a weighted average period of ~~2.1~~2.2 years.

The table below summarizes ~~restricted stock unit~~RSU activity for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020:


	Restricted Stock Units	Weighted Average Grant Date Fair Value		Restricted Stock Units		Weighted Average Grant Date Fair Value
Unvested restricted stock units, beginning of period	807,431	$	13.97
Unvested RSUs, beginning of period				1,099,901		$	12.97
Granted	585,659	$	12.33	686,345		7.45
Vested	237,702	$	14.58	(213,846	)	12.68
Forfeited	—	—		—		—
Unvested restricted stock units, end of period	1,155,388	$	13.06
Unvested RSUs, end of period				1,572,400		$	10.60

Performance Stock Units

During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, the Company granted PSUs to certain ~~employees, with each~~employees. Each PSU, ~~representing~~to the extent earned, represents the contingent right to receive 1 share of Class A Common ~~Stock. The number of shares of Class A Common~~ Stock ~~issuable upon vesting, however, ranges from~~and the awardee may earn between 0 toand 150% of the target number of PSUs granted based on the total shareholder return (“TSR”) of the Class A Common Stock relative to the TSR achieved by a specific industry peer group over ~~an approximate~~a three-year performance period, the last day of which is also the vesting date. In addition to the TSR conditions, vesting of the PSUs is subject to the awardee’s continued employment through the date of settlement of the PSUs, which will occur within 60 days following the end of the performance period. Unrecognized compensation expense related to unvested PSUs at ~~September 30, 2019~~March 31, 2020 was ~~$7.0~~$7.5 million, which the Company expects to recognize over a weighted average period of ~~2.1~~2.0 years.

The table below summarizes ~~performance stock award and unit~~PSU activity for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020:


	Performance Stock Units	Weighted Average Grant Date Fair Value		Performance Stock Units		Weighted Average Grant Date Fair Value
Unvested performance stock units, beginning of period	475,312	$	14.58
Unvested PSUs, beginning of period				701,128		$	14.31
Granted	267,482	$	13.87	401,958		6.14
Vested	33,333	$	14.58	(8,334	)	14.58
Forfeited	—	—		—		—
Unvested performance stock units, end of period	709,461	$	14.31
Unvested PSUs, end of period				1,094,752		$	11.31

The grant date fair value of the PSUs granted during the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 was ~~$3.7~~$2.5 million and $3.6 million, respectively, calculated using a Monte Carlo simulation. The following table summarizes the assumptions used to calculate the grant date fair value of these PSUs.



	~~Grant Date Fair Value Assumptions~~
~~Expected term (in years)~~	~~2.85 - 2.67~~
~~Expected volatility~~	~~33.61% - 31.58%~~
~~Risk-free interest rate~~	~~2.48% - 2.29%~~



Grant Date Fair Value Assumptions	Three Months Ended March 31, 2020	Three Months Ended March 31, 2019
Expected term (in years)	2.85	2.85
Expected volatility	33.50%	33.61%
Risk-free interest rate	1.16%	2.48%

~~14.~~13. Earnings (Loss) Per Share

A reconciliation of the numerators and denominators of the basic and diluted per share computations ~~follows. No such computation is necessary for the Predecessor Period as the Predecessor was not previously accounted for as a standalone legal entity and did not have publicly traded securities.~~follows:


(In thousands, except per share data)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019		July 31, 2018 Through September 30, 2018		Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
Basic:
Net Income attributable to Class A Common Stock	$	7,784	$	39,316	$	6,176
Net income (loss) attributable to Class A Common Stock							$	(1,227,010	)	$	13,026
Weighted average number of common shares outstanding during the period - basic	166,872		160,051		151,992		167,149			156,322
Net income per common share - basic	$	0.05	$	0.25	0.04
Net income (loss) per share of Class A Common Stock - basic							$	(7.34	)	$	0.08

Diluted:
Net Income attributable to Class A Common Stock	$	7,784	$	39,316	$	6,176
Net income (loss) attributable to Class A Common Stock							$	(1,227,010	)	$	13,026
Weighted average number of common shares outstanding during the period - basic	166,872		160,051		151,992		167,149			156,322
Add: Dilutive effect warrants and stock based compensation	236		1,437		5,080
Add: Dilutive effect warrants, stock based compensation, and other							—			1,818
Weighted average number of common shares outstanding during the period - diluted	167,108		161,488		157,072		167,149			158,140
Net income per common share - diluted	$	0.05	$	0.24	$	0.04
Net income (loss) per share of Class A Common Stock - diluted							$	(7.34	)	$	0.08

The calculation for weighted average shares reflects shares outstanding over the reporting period based on the actual number of days the shares were outstanding. The Company excluded ~~91.8~~the following from the computation of diluted earnings or loss per share because the effect was anti-dilutive as a result of the net loss for the quarter ended March 31, 2020: (i) 85.8 million ~~92.3 million, and 87.6 million of~~ weighted average shares of Class A Common Stock issuable upon ~~conversion~~exchange of the Class B Common Stock (and the corresponding Magnolia LLC Units) ~~for~~, (ii) 4.0 million contingent shares of Class A Common Stock issuable to EnerVest, provided EnerVest does not compete in the ~~three~~Market Area, and ~~nine months~~(iii) 0.3 million RSUs and PSUs. For the quarter ended ~~September 30,~~March 31, 2019, ~~and for~~ the ~~period from July 31, 2018 through September 30, 2018, respectively,~~Company excluded 93.3 million weighted average shares of Class A Common Stock issuable upon the exchange of the Class B Common Stock (and the corresponding Magnolia LLC Units) as the effect was anti-dilutive. ~~In addition, for the three months ended September 30, 2019 the effect of warrants were excluded because their inclusion would be anti-dilutive.~~

~~15.~~14. Related Party Transactions

As of ~~September 30, 2019,~~March 31, 2020, EnerVest Energy Institutional Fund XIV-A, L.P., a Delaware limited partnership, and EnerVest Energy Institutional Fund XIV-C, L.P., a Delaware limited partnership, both of which are part of the Karnes County Contributors, each held more than 10% of the Company’s common stock and qualified as principal owners of the Company, as defined in ASC 850, “Related Party Disclosures.”

~~Amended and Restated Limited Liability Company Agreement of Magnolia LLC~~

On the Closing Date, the Company, Magnolia LLC, and certain of the Karnes County Contributors entered into Magnolia LLC’s amended and restated limited liability company agreement, which sets forth, among other things, the rights and obligations of the holders of units in Magnolia LLC. Under the Magnolia LLC Agreement, the Company is the sole managing member of Magnolia LLC.

~~Registration Rights Agreement~~

At the closing of the Business Combination, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with TPG Pace Energy Sponsor LLC, a Delaware limited liability company (“TPG Pace”), the Karnes County Contributors, and the Company’s 4 independent directors prior to the Business Combination (collectively, the “Holders”), pursuant to which the Company is obligated, subject to the terms thereof and in the manner contemplated thereby, to register for resale under the Securities Act all or any portion of the shares of Class A Common Stock that the Holders held as of July 31, 2018 and that they may have acquired or might acquire thereafter, including upon conversion, exchange, or redemption of any other security therefor. Under the Registration Rights Agreement, Holders also have “piggyback” registration rights exercisable at any time that allow them to include the shares of Class A Common Stock that they own in certain registrations initiated by the Company.

Pursuant to the Registration Rights Agreement, the Company has filed and taken effective 2 registration statements on Form S-3, each of which registered, among others, the offering by the Holders of the shares of Class A Common Stock included therein.

~~Stockholder Agreement~~

On the Closing Date, the Company, TPG Pace, and the Karnes County Contributors entered into the Stockholder Agreement (the “Stockholder Agreement”), under which the Karnes County Contributors are entitled to nominate 2 directors, one of whom shall be independent under the listing rules of the New York Stock Exchange, the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002, for appointment to the board of directors of the Company (the “Board”) so long as they collectively own at least 15% of the outstanding shares of Class A Common Stock and Class B Common Stock, (on a fully diluted basis, including equity securities exercisable into common stock, and on a combined basis), and 1 director so long as they collectively own at least 2% of the outstanding shares of Class A Common Stock and Class B Common Stock (on a fully diluted basis, including equity securities exercisable into common stock, and on a combined basis). The Karnes County Contributors are collectively entitled to appoint 1 director to each committee of the Board (subject to applicable laws and stock exchange rules). Furthermore, TPG Pace was entitled to certain director nomination rights under the Stockholder Agreement, but those rights ceased following a distribution by TPG Pace of its shares in August 2019.

~~Contingent Consideration~~

Pursuant to the Karnes County Contribution Agreement, for a period of five years following the Closing Date, the Company agreed to issue or cause to be issued to the Karnes County Contributors additional equity in the Company and Magnolia LLC upon satisfaction of certain EBITDA and free cash flow or stock price thresholds in 3 tranches. As of December 31, 2018, the Company had met the defined stock price thresholds and had issued an aggregate of 3.6 million additional shares of Class A Common Stock and 9.4 million additional shares of Class B Common Stock to the Karnes County Contributors and had caused Magnolia LLC to issue 9.4 million additional Magnolia LLC Units to the Karnes County Contributors.

~~Tender and Support Agreement~~

Pursuant to the Offer, certain of the Company’s warrantholders, including directors and executive officers, agreed to tender their warrants by entering into the tender and support agreement, dated as of June 7, 2019, by and between the Company and such holders (the “Tender and Support Agreement”). See ~~Note 11 - Stockholders’ Equity~~ ~~for more information.~~

~~Predecessor Transactions~~

EnerVest, as managing general partner of the Karnes County Contributors, provided management, accounting and advisory services to the Karnes County Contributors in exchange for a quarterly management fee based on the Karnes County Contributors' investor commitments. The management fees incurred were allocated to the Predecessor using a ratio of asset acquisitions value to total asset acquisitions completed by the Karnes County Contributors. The management fees and other costs allocated to the Predecessor and included in "General and administrative expenses" in the combined statements of operations were $1.6 million and $11.6 million for the periods of July 1 through July 30, 2018 and January 1 through July 30, 2018, respectively.

The Karnes County Contributors also entered into operating agreements with EVOC to act as contract operator of the Predecessor’s oil and natural gas wells. The Predecessor reimbursed EVOC for direct expenses incurred. A majority of such expenses were charged on an actual basis (i.e., no mark-up or subsidy to EVOC). These costs are included in “Lease operating expenses” in the combined statements of operations in the Predecessor Period. Additionally, in its role as contract operator, EVOC collected proceeds from oil, natural gas, and NGL sales and distributed them to the Predecessor and other working interest owners.

~~16. Commitments and Contingencies~~

~~Legal Matters~~

The Company is involved in disputes or legal actions in the ordinary course of business. For example, certain of the Karnes County Contributors and the Company have been named as defendants in a lawsuit where the plaintiffs claim to be entitled to a minority working interest in certain Karnes County Business properties. The litigation is in the discovery stage. The exposure related to this litigation is currently not reasonably estimable. The Karnes County Contributors retained all such liability in connection with the Business Combination. At September 30, 2019, the Company does not believe the outcome of any such disputes or legal actions will have a material effect on its consolidated statement of operations, balance sheet, or cash flows.

~~Environmental Matters~~

The Company, as an owner or lessee and operator of oil and gas properties, is subject to various federal, state, local laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other

things, impose liability on the lessee under an oil and gas lease for the cost of pollution clean-up resulting from operations and subject the lessee to liability for pollution damages. In some instances, the Company may be directed to suspend or cease operations in the affected area. The Company maintains insurance coverage, which it believes is customary in the industry, although the Company is not fully insured against all environmental risks.

~~Risks and Uncertainties~~

The Company’s revenue, profitability, and future growth are substantially dependent upon the prevailing and future prices for oil and natural gas, which depend on numerous factors beyond the Company’s control such as overall oil and natural gas production and inventories in relevant markets, economic conditions, the global political environment, regulatory developments, and competition from other energy sources. Oil and natural gas prices historically have been volatile, and may be subject to significant fluctuations in the future.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~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. 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:

the length, scope and severity of the recent coronavirus disease 2019 (“COVID-19”) pandemic, and the impacts of the competition between Russia and Saudi Arabia for crude oil market share, including the effects of related public health concerns and the impact of actions taken by governmental authorities and other third parties in response to the pandemic and its impact on commodity prices, supply and demand considerations, and storage capacity;

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;

production and reserve levels;

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;

legislative, regulatory, or policy changes;

cyber attacks;

occurrence of property acquisitions or divestitures;

the integration of acquisitions; 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 Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018~~2019 filed with the SEC on February ~~27, 2019.~~26, 2020.

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"~~“Company” or ~~"Magnolia"~~“Magnolia”) is a Delaware corporation formed in February 2017 as a special purpose acquisition company under the name TPG Pace Energy Holdings Corp. for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses.

Magnolia’s business model was designed with a primary objective to generate stock market value over the long term. The Company’s strategy is to establish a company whose characteristics would demonstrate a certain basic set of criteria that appeal to generalist investors and to generate growing earnings per share over time, high operating and full cycle margins, and maintain a very strong balance sheet with a low amount of leverage.

~~On July 31, 2018, the Company and Magnolia Oil & Gas Parent LLC (“Magnolia LLC”), as applicable, consummated the acquisition of: (i) certain right, title, and interest in certain~~an independent oil and natural gas assets located primarily in the Karnes County portion of the Eagle Ford Shale in South Texas (the "Karnes County Assets") pursuant to that certain Contribution and Merger Agreement (as subsequently amended, the "Karnes County Contribution Agreement"), by and among the Company, Magnolia LLC and certain affiliates (the "Karnes County Contributors") of EnerVest Ltd. ("EnerVest"); (ii) certain right, title, and interest in certain oil and natural gas assets located primarily in the Giddings Field of the Austin Chalk (the "Giddings Assets") pursuant to that certain Purchase and Sale Agreement (the "Giddings Purchase Agreement") by and among Magnolia LLC and certain affiliates of EnerVest (the "Giddings Sellers"); and (iii) a 35% membership interest (the “Ironwood Interests”) in Ironwood Eagle Ford Midstream, LLC, a Texas limited liability company which owns an Eagle Ford gathering system, pursuant to that certain Membership Interest Purchase Agreement, by and among Magnolia LLC and certain affiliates of EnerVest (the "Ironwood Sellers") (collectively, the “Business Combination”).

In connection with the consummation of the Business Combination, on July 31, 2018, the Karnes County Contributors received 83.9 million shares of Class B Common Stock, par value $0.0001 per share (“Class B Common Stock”), 31.8 million shares of Class A Common Stock, par value $0.0001 per share (“Class A Common Stock”), and approximately $911.5 million in cash; the Giddings Sellers received approximately $282.7 million in cash; and the Ironwood Sellers received $25.0 million in cash. On March 29, 2019, Magnolia and EnerVest consummated the final settlement of the Business Combination, with Magnolia LLC receiving a net cash payment of $4.3 million in cash and the Karnes County Contributors forfeiting to Magnolia 0.5 million shares of Class A Common Stock and 1.6 million shares of Class B Common Stock (and forfeiting a corresponding number of Magnolia LLC Units to Magnolia LLC).

In accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company has been identified as the acquirer in the Business Combination and the Karnes County Business was deemed to be the accounting “Predecessor”. The Business Combination was accounted for using the acquisition method of accounting and the Successor financial statements reflect a new basis of accounting based on the fair value of net assets acquired. As a result of the application of the acquisition method of accounting, the Company’s consolidated and combined financial statements and certain presentations of information therein are separated into two distinct periods to indicate the different ownership and accounting basis between the periods presented, the period before the consummation of the Business Combination, which includes the period from January 1, 2018 to July 30, 2018 (the “Predecessor Period”), and the period after the Business Combination, which includes the period from July 31, 2018 to September 30, 2018 (the “2018 Successor Period”), and the three and nine months ended September 30, 2019 (the “2019 Successor Period”).

~~The Company operates in one reportable segment and is~~ engaged in the acquisition, development, exploration, and production of oil, natural gas, and natural gas ~~properties~~liquid (“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 Karnes County and the Giddings Field 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. Magnolia’s business model prioritizes free cash flow, financial stability, and prudent capital allocation, and is designed to withstand challenging environments such as the one the Company is currently experiencing.

COVID-19 Pandemic and Market Conditions Update

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Governments have tried to slow the spread of the virus by imposing social distancing guidelines, travel restrictions, and stay-at-home orders, which have caused a significant decrease in activity in the global economy and the demand for oil and natural gas. Furthermore, in the midst of the ongoing COVID-19 pandemic, the competition between Russia and Saudi Arabia for crude oil market share caused a substantial increase in supply. As a result, the price of oil has remained extremely depressed and available storage and transportation capacity for production is increasingly limited and may be completely unavailable in the near future. The imbalance between the supply of and demand for oil, lack of available storage, as well as the uncertainty around the extent and timing of an economic recovery, have caused extreme market volatility and a substantial adverse effect on commodity prices.

Magnolia’s business, like many oil and natural gas producers, has been, and is expected to continue to be, negatively affected by the crisis described above, which is ongoing and evolving. The Company has not entered into any hedging arrangements with respect to the commodity price risk to which the Company is exposed and the prices ultimately realized for oil, natural gas, and NGLs are based on a number of variables, including prevailing index prices attributable to the Company’s production and certain differentials to those index prices. Magnolia is unable to reasonably predict when, or to what extent, commodity prices and the overall markets and global economy will stabilize, and the pace of any subsequent recovery for the oil and gas industry. Further, the ultimate impact that these events will have on Magnolia’s business, liquidity, financial condition, and results of operations is highly uncertain and dependent on numerous evolving factors that cannot be predicted, including the duration of the pandemic.

Magnolia has taken steps and continues to actively work to mitigate the evolving challenges and growing impact of both the COVID-19 pandemic and the industry downturn on its operations, financial condition, and people. Magnolia’s business model prioritizes free cash flow, financial stability, and prudent capital allocation, and is designed to withstand challenging environments. The Company’s ongoing plan is to spend within cash flow on drilling and completing wells while maintaining low leverage. Magnolia currently expects its drilling and completion capital outlays for the remainder of the year to be less than those in the first quarter of 2020. As a result, the Company has reduced its rig count to one rig in the Giddings assets. If the current commodity price environment persists, Magnolia expects to cease its remaining drilling and completion activity across its asset base. The Company is well positioned to reduce operations given the significant flexibility within its capital program, as its operated drilling rig is on a short-term contract and the Company has no long-term service obligations. Moreover, Magnolia does not have any contractual drilling obligations and nearly all the Company’s acreage is held by production. In response to the COVID-19 pandemic and industry downturn, Magnolia has initiated a corporate-wide cost reduction program to help decrease costs throughout every aspect of the Company. The Company has made reductions in general and administrative expense by reducing corporate salaries by approximately ten percent, renegotiating the fees with the Services Agreement, and continues to work with many of its other vendors and suppliers to reduce the cost of their services in order to improve the Company’s margins. Magnolia believes these measures, taken together with its significant liquidity and lack of near term debt maturities, will provide additional flexibility in navigating the current volatile environment; however, given the tremendous uncertainty and turmoil, there is no certainty that the measures Magnolia takes will be sufficient.

As a producer of oil and natural gas, Magnolia is recognized as an essential business and has continued to operate while taking steps to protect the health and safety of its workers. Magnolia and its contractors have implemented protocols to reduce the risk of an outbreak within its operations, and these protocols have not reduced production or efficiency in a significant manner. Magnolia’s non-field level employees have the option to temporarily work remotely, and Magnolia has been able to maintain a consistent level of effectiveness through these arrangements, including maintaining day-to-day operations, financial reporting systems, and internal control over financial reporting.

Business Overview

As of ~~September 30, 2019,~~March 31, 2020, Magnolia’s assets in South Texas included ~~21,946 net~~42,968 gross (23,535 net) acres in Karnes, Gonzales, DeWitt, and Atascosa ~~counties~~Counties, Texas, and ~~428,682 net~~630,787 gross (428,778 net) acres in the Giddings Field. As of ~~September 30, 2019,~~March 31, 2020, Magnolia held an interest in approximately ~~1,618~~1,792 gross (1,181 net) wells, ~~(1,128 net),~~ with total production of ~~66.3~~68.4 thousand barrels of oil equivalent per day (“Mboe/d”) for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. In the ~~third~~first quarter of ~~2019,~~2020, Magnolia operated ~~two drilling rigs across its acreage, one rig in~~a one-rig program for the Karnes County Assets and ~~one rig in~~a one-rig program for the Giddings ~~Field.~~

Magnolia’s production averaged 71.3 Mboe/d for the third quarter of 2019, a 9.5% increase compared to 65.1 Mboe/d in the second quarter. Third quarter oil production averaged 53.7% of total volumes.

~~In July, 2019, the Company exchanged all of its warrants for an aggregate of 9.2 million shares of Class A Common Stock. For more information, see~~ ~~Note 11 - Stockholders’ Equity~~ ~~in the Company’s unaudited consolidated financial statements included in this Quarterly Report.~~Assets.

Magnolia recognized a net ~~income~~loss attributable to Class A Common Stock of ~~$7.8 million and $39.3 million,~~$1.2 billion, or ~~$0.05 and $0.24~~$7.34 per diluted common share, for the three ~~and nine~~ months ended September 30, 2019, respectively. Net income attributable to Class A Common Stock for the three and nine months ended September 30, 2019 was reduced by $2.8 million related to the non-cash deemed dividend asMarch 31, 2020. Magnolia recognized a ~~result~~net loss of ~~the warrant exchange. Magnolia also recognized net income of $17.4 million and $71.4 million,~~$1.9 billion, which includes noncontrolling interest of ~~$6.8 million and $29.3 million~~$0.7 billion related to the Magnolia LLC Units (and corresponding Class B Common ~~Stock~~Stock) held by certain affiliates of EnerVest for the three ~~and nine month 2019 Successor Period~~months ended ~~September 30, 2019, respectively.~~March 31, 2020.

On August 5, 2019, the Company’s ~~Board~~board of ~~Directors~~directors authorized a share repurchase program of up to 10 million ~~shares.~~shares of Class A Common Stock. The program does not require purchases to be made within a particular timeframe. ~~During~~As of March 31, 2020, the Company had repurchased 2.0 million shares under the plan at a cost of $16.8 million, 1.0 million of which were repurchased in the first quarter of 2020 at a cost of $6.5 million.

As a result of the sharp decline in commodity prices during the first quarter of 2020, Magnolia recorded impairments of $1.9 billion related to proved and unproved properties. Proved property impairment of $1.4 billion is included in “Impairment of oil and natural gas properties” and unproved property impairment of $0.6 billion is included in “Exploration expense” on the Company’s consolidated statement of operations for the three ~~and nine~~ months ended ~~September 30, 2019, the Company repurchased 950 thousand shares at a weighted average price of $10.23, for a total cost of approximately $9.7 million.~~March 31, 2020.

Results of Operations

Factors Affecting the Comparability of the Historical Financial Results

~~The 2018~~Magnolia’s historical financial condition and ~~2019 Successor Period financial statements reflect a new basis~~results of ~~accounting~~operations for the assets acquired and liabilities assumed by the Company in the Business Combination that is based on their fair value. As a result, the statement of operations subsequent to the Business Combination includes depreciation and amortization expense on Magnolia’s property, plant, and equipment balances made under the new basis of accounting. Therefore, the Company’s financial information prior to the Business Combinationperiods presented may not be comparable, either from period to ~~its financial information subsequent to the Business Combination. Certain other items of income and expense may not be comparable~~period or going forward, as a result of the following factors:

~~For~~The Company incurred a net loss of $1.9 billion for the ~~periods prior~~quarter ended March 31, 2020 compared to ~~July~~net income of $22.7 million for the quarter ended March 31, ~~2018,~~2019. The net loss was primarily a result of impairments of $1.9 billion related to proved and unproved oil and natural gas properties for the results of operations reflect the results of solely the Predecessor, which, as described above, consists of only the results of the Karnes County Business, including, as applicable, its ownership of the Ironwood Interests, when the Predecessor was not owned by the Company, and do not include the results of the Giddings Assets;quarter ended March 31, 2020;

~~The results of operations of~~On February 21, 2020, the Predecessor were not previously accounted for as the results of operations of a stand-alone legal entity, and accordingly have been carved out, as appropriate, for the periods presented. The results of operations of the Predecessor therefore include a portion of indirect costs for salaries and benefits, depreciation, rent, accounting, legal services, and other expenses. In addition to the allocation of indirect costs, the results of operations reflect certain agreements executed by the Karnes County Contributors for the benefit of the Predecessor, including price risk management instruments. For more information, please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. These allocations may not be indicative of the cost of future operations or the amount of future allocations;

~~The Predecessor~~Company completed the acquisition of certain non-operated oil and natural gas assets ~~from GulfTex Energy III, L.P.~~located in Karnes and ~~GulfTex Energy IV, L.P. on March 1, 2018 during~~DeWitt Counties, Texas, for approximately $71.3 million in cash, subject to customary closing adjustments;

On May 31, 2019, the ~~Predecessor Period,~~Company completed the acquisition of certain oil and ~~accordingly~~natural gas assets located in the ~~results of operations~~Company’s Karnes County Assets for approximately $36.3 million in cash and approximately 3.1 million shares of the ~~Predecessor reflect the impact of the assets acquired in that acquisition only from their respective acquisition date;~~Company’s Class A Common Stock; and

As a corporation, the Company is subject to U.S. federal income taxes at a statutory rate of 21% of pretax earnings whereas the Karnes County Contributors were treated as partnerships for income tax purposes. As a result, items of income, expense, gains and losses flowed through to the owners of the Karnes County Contributors and were taxed at the owner level. Accordingly, no U.S. tax provision for federal income taxes is included in the financial statements of the Predecessor;

•

~~On August 31, 2018, the Company acquired substantially all of the South Texas assets of Harvest Oil & Gas Corporation (the “Harvest Acquisition”) for approximately~~ ~~$133.3 million~~ ~~in cash and~~ ~~4.2 million~~ ~~shares of the Company’s Class A Common Stock. The Harvest Acquisition added an undivided working interest across a portion of the Karnes County Assets and all of the Giddings Assets;~~

On February 5, 2019, Magnolia Operating formed a joint venture, Highlander Oil & Gas Holdings LLC (“Highlander”), to complete the acquisition of a 72% working interest in the Eocene-Tuscaloosa Zone, Ultra Deep Structure gas well located in St. Martin Parish, Louisiana (the “Highlander Well”)~~; and~~, in which MGY Louisiana LLC, a wholly owned subsidiary of Magnolia Operating, holds approximately 85% of the units, with the remaining 15% attributable to noncontrolling interest.


•	~~The financial results for the Successor Period reflect the adoption of ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers,~~ which the Company adopted on December 31, 2018 and applied to all periods presented in the Successor Period. The Predecessor Period continues to be reported under the accounting standards in effect for that period.

As a result of the factors listed above, the ~~combined~~ 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 Months Ended ~~September 30, 2019~~March 31, 2020 Compared to the Three Months Ended ~~September 30, 2018~~

~~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 barrels of oil equivalent (“boe”) basis in which natural gas is converted to an equivalent barrel of oil based on a ratio of six thousand cubic feet of natural gas (“Mcf”) to one barrel. This ratio may not be reflective of the current price ratio between the two products.

Successor Predecessor
(In thousands, except per unit data)
Three Months Ended
September 30, 2019

July 31, 2018
Through
September 30, 2018

July 1, 2018
Through
July 30, 2018
Production:
Oil (MBbls) 3,520
2,023
897
Natural gas (MMcf) 10,763
5,341
1,153
NGLs (MBbls) 1,245
678
160
Total (Mboe) 6,559
3,591
1,249

Average daily production:
Oil (Bbls/d) 38,261
33,164
28,935
Natural gas (Mcf/d) 116,989
87,557
37,194
NGLs (Bbls/d) 13,533
11,115
5,161
Total (boe/d) 71,292
58,872
40,290

Revenues:
Oil revenues $ 207,840
$ 143,202
$ 68,487
Natural gas revenues 21,243
13,414
3,646
Natural gas liquids revenues 15,716
21,547
4,754
Total revenues $ 244,799
$ 178,163
$ 76,887

Average Price:
Oil (per barrel) $ 59.05
$ 70.79
$ 76.35
Natural gas (per Mcf) 1.97
2.51
3.16
NGLs (per barrel) 12.62
31.78
29.71

~~Oil revenueswere 85%, 80%, and 89% of the Company’s total revenues for the~~March 31, 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. Oil revenues for the 2019 Successor Period were $3.8 million lower compared to the combined 2018 Successor Period and Predecessor Period due to a 19% decrease in average prices partially offset by 21% higher production. The higher volumes are attributable to the inclusion of the Giddings Assets, recent acquisitions, and continued development. Oil production was 54%, 56%, and 72% of total production volume for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively.

Natural gas revenues were 9%, 8%, and 5% of the Company's total revenues for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. Natural gas revenues for the 2019 Successor Period were $4.2 million higher compared to the combined 2018 Successor and Predecessor Period due to a 66% increase in natural gas production primarily attributable to the Successor’s inclusion of the Giddings Assets and the acquisition of the Highlander Well, partially offset by a 25% decrease in average

~~prices. Natural gas production was 27%, 25%, and 15% of total production volume for the 2019 Successor Period, 2018 Successor Period and the Predecessor Period, respectively.~~

Natural gas liquids revenues were 6%, 12%, and 6% of the Company’s total revenues for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. NGL production was 19%, 19%, and 13% of total production volume for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. Natural gas liquids revenues for the 2019 Successor Period were $10.6 million lower compared to the combined 2018 Successor Period and Predecessor Period due to a 60% decrease in average prices, partially offset by 49% higher production. The higher production volumes are primarily attributable to the Successor’s inclusion of the Giddings Assets, recent acquisitions, and continued development.

~~Operating Expenses and Other Income (Expense). The following table summarizes the Company’s operating expenses and other income (expense) for the periods indicated.~~

Successor Predecessor
(In thousands, except per unit data)
Three Months Ended
September 30, 2019

July 31, 2018
Through
September 30, 2018

July 1, 2018
Through
July 30, 2018
Operating Expenses:
Lease operating expenses $ 24,344
$ 11,016
$ 3,681
Gathering, transportation and processing 9,270
5,353
2,240
Taxes other than income 13,333
9,351
2,087
Exploration expenses 3,924
11,221
40
Asset retirement obligations accretion 1,394
391
21
Depreciation, depletion and amortization 143,894
65,902
23,157
Amortization of intangible assets 3,626
2,418
—
General and administrative expenses 17,345
10,297
1,701
Transaction related costs —
22,366
—
Total operating costs and expenses $ 217,130
$ 138,315
$ 32,927

Other Income (Expense):
Income (loss) from equity method investee $ 92
$ 309
$ (345 )
Interest expense, net (6,896 ) (4,959 ) —
Gain on derivatives, net —
—
3,865
Other income (expense), net 21
(7,019 ) 24
Total other income (expense) $ (6,783 ) $ (11,669 ) $ 3,544

Average Operating Costs per Boe:
Lease operating expenses $ 3.71
$ 3.07
$ 2.95
Gathering, transportation and processing 1.41
1.49
1.79
Taxes other than income 2.03
2.60
1.67
Exploration costs 0.60
3.12
0.03
Asset retirement obligation accretion 0.21
0.11
0.02
Depreciation, depletion and amortization 21.94
18.35
18.54
Amortization of intangible assets 0.55
0.67
—
General and administrative expenses 2.64
2.87
1.36
Transaction related costs —
6.23
—

Lease operating expenses are the costs incurred in the operation of producing properties which include expenses for utilities, direct labor, water disposal, workover rigs, workover expenses, materials, and supplies. Lease operating expenses were $24.3 million, $11.0 million, and $3.7 million for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. Lease operating expenses were $3.71 per boe, $3.07 per boe, and $2.95 per boe for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. Lease operating expenses for the 2019 Successor Period were $9.6 million higher than the combined 2018 Successor Period and Predecessor Period primarily due to the inclusion of the Giddings Assets, recent acquisitions, and continued development. The higher cost per boe in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor

Period was primarily due to the inclusion of the Giddings Assets as the Giddings Assets deliver less production per well than the Karnes County Assets, resulting in lease operating costs spread over fewer volumes.

Gathering, transportation and processing costs are costs incurred to deliver oil, natural gas, and NGLs to the market. Cost levels of these expenses can vary based on the volume of oil, natural gas, and NGLs produced as well as the cost of commodity processing. Gathering, transportation and processing costs were $9.3 million, $5.4 million, and $2.2 million for the 2019 Successor Period, the 2018 Successor Period and the Predecessor Period, respectively, or $1.41, $1.49, and $1.79 on a per boe basis. The $1.7 million higher costs in the 2019 Successor Period, compared to the combined 2018 Successor Period and Predecessor Period, were primarily due to the inclusion of the Giddings Assets as the Giddings Assets produce more gas than the Karnes County Assets and require more gathering, transportation, and processing than the Karnes County Assets. The lower cost per boe in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period was primarily attributable to the adoption of the new revenue recognition requirements.

Taxes other than income include production and ad valorem 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 were $13.3 million, $9.4 million, and $2.1 million for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. The $1.9 million higher taxes other than income incurred during the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period are primarily due to higher fair market values of mineral interest and business assets. Taxes other than income were $2.03 per boe, $2.60 per boe, and $1.67 per boe for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. The lower costs per boe in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period were primarily due to lower production taxes in the 2019 Successor Period.

Exploration costs are geological and geophysical costs that include seismic surveying costs, costs of unsuccessful exploratory dry holes, costs of expired or abandoned leases, and delay rentals. Exploration expenses of $3.9 million in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period were $7.3 million lower primarily as a result of a one-time purchase of a seismic license continuation in connection with the Business Combination in the 2018 Successor Period.

Asset retirement obligation accretion was $1.0 million higher during the 2019 Successor Period as compared to the combined 2018 Successor Period and Predecessor Period. The $1.4 million asset retirement obligation accretion incurred during the 2019 Successor Period was driven by the inclusion of the Giddings Assets. This resulted in higher accretion expense per boe in the 2019 Successor Period of $0.21 per boe.

Depreciation, depletion and amortization (“DD&A”) was $143.9 million, $65.9 million, and $23.2 million for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. DD&A was $21.94 per boe for the 2019 Successor Period as compared to $18.35 per boe for the 2018 Successor Period, and $18.54 per boe for the Predecessor Period. DD&A in the 2019 Successor Period was $54.8 million higher than the combined 2018 Successor and Predecessor Period primarily attributable to the increase in property, plant, and equipment and the increased production as a result of the Successor’s inclusion of the Giddings Assets, recent acquisitions, and continued development. The higher rate per boe for the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period is mostly due to Magnolia’s higher property, plant, and equipment balances recorded as a result of the new basis of accounting related to the Business Combination, recent acquisitions and decrease in proved reserves. The Predecessor’s reserves are based on a five-year development plan, whereas the vast majority of the Successor’s proved undeveloped reserves are planned to be developed within one year.

The amortization of intangible assets was $3.6 million and $2.4 million for the 2019 Successor Period and the 2018 Successor Period, respectively. In connection with the close of the Business Combination, the Company recorded an estimated cost of $44.4 million for the Non-Compete Agreement (the “Non-Compete”) entered into with EnerVest on the Closing Date as intangible assets on the Company’s consolidated balance sheet. The $1.2 million higher amortization of intangible assets in the 2019 Successor Period as compared to the 2018 Successor Period is due to three months of amortization in the 2019 Successor Period as compared to approximately two months of amortization in the 2018 Successor Period. These intangible assets have a definite life and are subject to amortization utilizing the straight-line method over their economic life, currently estimated to be two and one half to four years. There were no intangible assets in any of the Predecessor Periods.

General and administrative (“G&A”) expenses are costs incurred for overhead, including payroll and benefits for corporate staff, costs of maintaining a headquarters, IT expenses, and audit and other fees for professional services, including legal compliance expenses. The Company incurs G&A related to the Services Agreement (the “Services Agreement”) with EnerVest Operating L.L.C. (“EVOC”), in which EVOC provides the Company’s day-to-day field level and back office operations and support for the operation and development of the assets, subject to certain exceptions. As consideration for the services to be provided under the Services Agreement, EVOC is paid an annual fee of $23.6 million. In addition, the Company pays industry standard per well overhead payments to EVOC that are adjusted

in accordance with industry standard inflationary measures and reimburses EVOC for certain costs incurred by EVOC in performing the services. G&A expenses were $17.3 million, $10.3 million, and $1.7 million for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. The $5.3 million higher G&A expenses incurred during the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period were primarily due to the Successor incurring~~certain additional G&A expenses related to fees payable to EVOC under the Services Agreement as well as increased salaries and wages and stock-based compensation costs.~~

Interest expense, net was $6.9 million for the 2019 Successor Period and $5.0 million for the 2018 Successor Period. Interest expense incurred in the 2019 Successor Period and the 2018 Successor Period is due to interest as well as amortization of debt issuance costs related to the Company’s 6.0% senior notes due 2026 (the “2026 Senior Notes”) and the senior secured reserve-based revolving credit facility (the “RBL Facility”).

~~Loss on derivatives, net was $3.9 million for the Predecessor Period. Magnolia has not engaged in any hedging activities with respect to the market risk to which the Company is exposed.~~

~~Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018~~

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.


	Successor				Predecessor
(In thousands, except per unit data)	Nine Months Ended September 30, 2019		July 31, 2018 Through September 30, 2018		January 1, 2018 Through July 30, 2018		Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Production:
Oil (MBbls)	9,615		2,023		5,755		3,391		2,906
Natural gas (MMcf)	30,583		5,341		7,595		10,053		9,763
NGLs (MBbls)	3,389		678		1,097		1,155		1,084
Total (Mboe)	18,101		3,591		8,118		6,222		5,617

Average daily production:
Oil (Bbls/d)	35,220		33,164		27,146		37,259		32,289
Natural gas (Mcf/d)	112,026		87,557		35,825		110,475		108,478
NGLs (Bbls/d)	12,414		11,115		5,175		12,688		12,044
Total (boe/d)	66,305		58,872		38,292		68,360		62,413

Revenues:
Oil revenues	$	584,009	$	143,202	$	399,124	$	154,686	$	171,654
Natural gas revenues	71,208		13,414		22,135		16,175		27,375
Natural gas liquids revenues	51,215		21,547		27,927		10,504		19,645
Total revenues	$	706,432	$	178,163	$	449,186	$	181,365	$	218,674

Average Price:
Oil (per barrel)	$	60.74	$	70.79	$	69.35	$	45.62	$	59.07
Natural gas (per Mcf)	2.33		2.51		2.91		1.61		2.80
NGLs (per barrel)	15.11		31.78		25.46		9.09		18.12

Oil revenues were ~~83%, 80%,~~85% and ~~89%~~78% of the Company’s total revenues for the three months ended March 31, 2020 and 2019, ~~Successor Period, the 2018 Successor Period, and the Predecessor Period,~~ respectively. Oil revenues for the 2019 Successor Period were $41.7 million higher compared to the combined 2018 Successor Period and Predecessor Period due to 24% higher production partially offset by a 13% decrease in average prices. The higher volumes in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period are

~~attributable to the inclusion of the Giddings Assets, recent acquisitions and continued development.~~ Oil production was ~~53%, 56%,~~55% and ~~71%~~52% of total production volume for the three months ended March 31, 2020 and 2019, ~~Successor Period,~~respectively. The oil revenues for the ~~2018 Successor Period, and~~three months ended March 31, 2020 were $17.0 million lower than the ~~Predecessor Period, respectively.~~three months ended March 31, 2019 due to a 23% decrease in average prices partially offset by 17% higher production.

Natural gas revenues were ~~10%, 8%,~~9% and 5%13% of the Company's total revenues for the three months ended March 31, 2020 and 2019, ~~Successor Period,~~respectively. Natural gas production was 27% and 29% of total production volume for the ~~2018 Successor Period,~~three months ended March 31, 2020 and ~~the Predecessor Period,~~2019, respectively. Natural gas revenues for the ~~2019 Successor Period~~three months ended March 31, 2020 were ~~$35.7~~$11.2 million ~~higher compared to~~lower than the ~~combined 2018 Successor Period and Predecessor Period~~three months ended March 31, 2019 due to ~~136% more natural gas production primarily attributable to the Successor’s inclusion of the Giddings Assets and the acquisition of the Highlander Well~~43% lower average prices partially offset by ~~a 15% decrease in average prices. Natural~~3% higher natural gas ~~production was 28%, 25%, and 16% of total production volume for the 2019 Successor Period, the 2018 Successor Period and the Predecessor Period, respectively.~~

Natural gas liquids revenues were 7%, 12%, and 6% of the Company’s total revenues for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. NGL production was 19%, 19%, and 14% of total production volume for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. Natural gas liquids revenues for the 2019 Successor Period were $1.7 million higher in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period due to 91% higher production partially offset by a 46% decrease in average prices.production. The higher production volumes are primarily attributable to the ~~Successor’s inclusion~~Highlander Well being included for all of the ~~Giddings Assets,~~quarter ended March 31, 2020.

NGL revenues were 6% and 9% of the Company’s total revenues for the three months ended March 31, 2020 and 2019, respectively. NGL production was 19% of total production volume for both the three months ended March 31, 2020 and March 31, 2019. NGL revenues for the three months ended were March 31, 2020 $9.1 million lower than the three months ended March 31, 2019 due to 50% lower average prices partially offset by 7% higher production. The higher production volumes are primarily attributable to recent acquisitions and continued development.

Operating Expenses and Other Income (Expense). The following table summarizes the Company’s operating expenses and other income (expense) for the periods indicated.

Successor Predecessor
(In thousands, except per unit data) Nine Months Ended
September 30, 2019 July 31, 2018
Through
September 30, 2018 January 1, 2018
Through
July 30, 2018
Operating Expenses:
Lease operating expenses $ 70,755
$ 11,016
$ 23,513
Gathering, transportation and processing 26,016
5,353
12,929
Taxes other than income 40,825
9,351
23,763
Exploration expenses 10,017
11,221
492
Asset retirement obligations accretion 4,095
391
104
Depreciation, depletion and amortization 385,942
65,902
137,871
Amortization of intangible assets 10,879
2,418
—
General and administrative expenses 52,648
10,297
12,710
Transaction related costs 438
22,366
—
Total operating costs and expenses $ 601,615
$ 138,315
$ 211,382

Other Income (Expense):
Income from equity method investee $ 608
$ 309
$ 711
Interest expense, net (21,611 ) (4,959 ) —
Loss on derivatives, net —
—
(18,127 )
Other expense, net 8
(7,019 ) (50 )
Total other expense $ (20,995 ) $ (11,669 ) $ (17,466 )

Average Operating Costs per Boe:
Lease operating expenses $ 3.91
$ 3.07
$ 2.90
Gathering, transportation and processing 1.44
1.49
1.59
Taxes other than income 2.26
2.60
2.93
Exploration costs 0.55
3.12
0.06
Asset retirement obligation accretion 0.23
0.11
0.01
Depreciation, depletion and amortization 21.32
18.35
16.98
Amortization of intangible assets 0.60
0.67
—
General and administrative expenses 2.91
2.87
1.57
Transaction related costs 0.02
6.23
—



(In thousands, except per unit data)	Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
Operating Expenses:
Lease operating expenses	$	24,163		$	21,518
Gathering, transportation, and processing	8,020			9,315
Taxes other than income	10,018			14,401
Exploration expenses	556,427			2,476
Impairment of oil and natural gas properties	1,381,258			—
Asset retirement obligations accretion	1,438			1,328
Depreciation, depletion and amortization	142,671			115,946
Amortization of intangible assets	3,626			3,626
General and administrative expenses	18,080			16,196
Transaction related costs	—			353
Total operating costs and expenses	$	2,145,701		$	185,159

Other Income (Expense):
Income from equity method investee	$	440		$	388
Interest expense, net	(6,757		)	(7,416		)
Other expense, net	(472		)	1
Total other expense	$	(6,789	)	$	(7,027	)

Average Operating Costs per boe:
Lease operating expenses	$	3.88		$	3.83
Gathering, transportation, and processing	1.29			1.66
Taxes other than income	1.61			2.56
Exploration expense	89.43			0.44
Impairment of oil and natural gas properties	222.00			—
Asset retirement obligation accretion	0.23			0.24
Depreciation, depletion and amortization	22.93			20.64
Amortization of intangible assets	0.58			0.65
General and administrative expenses	2.91			2.88
Transaction related costs	—			0.06

Lease operating expenses are ~~the~~ 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 ~~were $70.8 million, $11.0 million, and $23.5 million~~ for the ~~2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. Lease operating expenses~~three months ended March 31, 2020 were ~~$3.91 per boe, $3.07 per boe, and $2.90 per boe for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. Lease operating expenses were $36.2~~$2.6 million higher inthan the three months ended March 31, 2019 ~~Successor Period as compared to the combined 2018 Successor Period and Predecessor Period~~ primarily due to ~~the inclusion of the Giddings Assets,~~ recent acquisitions and continued ~~development.~~development bringing new wells online. The ~~higher~~ per boe cost infor the ~~2019 Successor Period compared to~~three months ended March 31, 2020 remained consistent with the combined 2018 Successor Period and Predecessor period was primarily due to the inclusion of the Giddings Assets as the Giddings Assets deliver less production per well than the Karnes County Assets, resulting in lease operating costs spread over fewer volumes.three months ended March 31, 2019.

Gathering, transportation, and processing costs are costs incurred to deliver oil, natural gas, and NGLs to the market. ~~Cost levels of these~~These expenses can vary based on the volume of oil, natural gas, and NGLs produced as well as the cost of commodity processing. ~~Gathering,~~The gathering, transportation, and processing costs ~~were $26.0 million, $5.4 million, and $12.9 million~~ for the ~~2019 Successor Period,~~three months ended March 31, 2020 were $1.3 million lower than the ~~2018 Successor Period and the Predecessor Period, respectively, or $1.44, $1.49, and $1.59 on a per boe basis. The $7.7 million higher costs in the~~three months ended March 31, 2019 ~~Successor Period compared to the combined 2018 Successor Period and Predecessor Period were~~ primarily due to ~~the inclusion of the Giddings Assets as the Giddings Assets produce more~~lower gas ~~than~~production from the Karnes County Assets and ~~require more gathering, transportation, and processing than the Karnes County~~Giddings Assets. The ~~lower~~decreased cost per boe in the ~~2019 Successor Period~~three months ended March 31, 2020 compared to ~~Combined 2018 Successor and Predecessor Period~~the three months ended March 31, 2019 was primarily attributable to ~~the adoption of the new revenue recognition requirements~~recent acquisitions that ~~were not retroactively applied to the Predecessor Period.~~have a lower cost per boe.

March 31, 2020 compared to the ~~combined 2018 Successor Period and Predecessor Period are~~three months ended March 31, 2019 primarily due to ~~an increase~~a decrease in ~~revenues. Taxes other than income were $2.26 per boe, $2.60 per boe, and $2.93 per boe for~~revenues following the ~~2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. The lower costs per boe~~recent decline in the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period were primarily due to the inclusion of the Giddings Assets as the Giddings Assets incur lower production taxes.commodity prices.

Exploration ~~costs~~expenses are geological and geophysical costs that include unproved property impairments, seismic surveying costs, costs of unsuccessful exploratory dry ~~holes,~~wells, costs of expired or abandoned leases, and delay rentals. ~~Exploration expenses of $10.0~~The exploration costs for the three months ended March 31, 2020 were $554.0 million inhigher than the three months ended March 31, 2019 ~~Successor Period were $1.7 million lower compared to the combined 2018 Successor Period~~ and ~~Predecessor Period~~$88.99 higher on a boe basis as a result of a ~~one-time purchase of a seismic license continuation in connection with the Business Combination in the 2018 Successor Period.~~

~~Asset retirement obligation accretion was higher during the 2019 Successor Period as compared~~$555.2 million impairment related to Magnolia’s unproved oil and natural gas properties due to the ~~combined 2018 Successor and Predecessor Period. The $4.1 million asset retirement obligation accretion incurred during the 2019 Successor Period was~~sharp decline in commodity prices primarily driven by the ~~inclusion~~COVID-19 pandemic and oversupply by producers relating to oil price and production controls. For more information, please see Note 5 “Fair Value Measurements” to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q.

For the three months ended March 31, 2020, Magnolia recognized $1.4 billion of ~~the Giddings Assets. This resulted~~impairment included in ~~higher accretion expense per boe~~“Impairment of oil and natural gas properties” in the ~~2019 Successor Period~~consolidated statement of ~~$0.23 per boe.~~operations related to its proved oil and natural gas properties. The impairment was primarily driven by the sharp decline in commodity prices. For more information, please see Note 5 “Fair Value Measurements” to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q.

Depreciation, depletion and amortization (“DD&A&A”) during the three months ended March 31, 2020 was $385.9 million, $65.9 million, and $137.9 million for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. DD&A was $21.32 per boe for the 2019 Successor Period. DD&A was $182.2$26.7 million higher inthan the ~~2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period.~~three months ended March 31, 2019. The ~~higher~~ DD&A and ~~the higher~~ DD&A rate per boe for the ~~2019 Successor Period compared to~~three months ended March 31, 2020 were higher than the ~~combined 2018 Successor Period and Predecessor Period is mostly~~three months ended March 31, 2019 due to ~~Magnolia’s~~a higher ~~property, plant,~~cost basis and ~~equipment balances recorded~~fewer reserves. As a result of the non-cash impairment in the first quarter of 2020, Magnolia expects the DD&A rate to be lower for the remainder of the year.

General and administrative (“G&A”) expenses during the three months ended March 31, 2020 were $1.9 million higher than the three months ended March 31, 2019 primarily as a result of the new basis of accounting related to the Business Combination, recent acquisitions and decrease in proved reserves. The Predecessor’s reserves are based on a five-year development plan, whereas the vast majority of the Successor’s proved undeveloped reserves are planned to be developed within one year.

The amortization of intangible assets was $10.9 million and $2.4 million for the 2019 Successor Period and the 2018 Successor Period, respectively. In connection with the close of the Business Combination, the Company recorded an estimated cost of $44.4 million for the Non-Compete Agreement as intangible assets on the Company’s consolidated balance sheet. The $8.5 million higher amortization of intangible assets in the 2019 Successor Period as compared to the 2018 Successor Period is due to nine months of amortization in the 2019 Successor Period as compared to approximately two months of amortization in the 2018 Successor Period. These intangible assets have a definite life and are subject to amortization utilizing the straight-line method over their economic life, currently estimated to be two and one half to four years. There was no amortization of intangible assets in the Predecessor Period.

G&A expenses were $52.6 million, $10.3 million, and $12.7 million for the 2019 Successor Period, the 2018 Successor Period, and the Predecessor Period, respectively. The $29.6 million higher G&A expenses and higher G&A expenses per boe incurred during the 2019 Successor Period compared to the combined 2018 Successor Period and Predecessor Period were primarily due to the Successor

~~incurringcertain additional G&A~~increased corporate payroll expenses related to ~~fees payable to EVOC under the Services Agreement as well as~~ increased ~~salaries and wages and stock-based compensation costs.~~employee headcount.

Interest expense, net, ~~was $21.6 million~~incurred for the ~~2019 Successor Period,~~three months ended March 31, 2020 and ~~$5.0 million for the 2018 Successor Period. Interest expense incurred in the~~ 2019 ~~Successor Period and 2018 Successor Period~~ is due to interest and amortization of debt issuance costs related to the ~~2026~~Company’s 6.0% Senior Notes due 2026 (the “2026 Senior Notes”) and the ~~RBL Facility.~~

~~Loss on derivatives,~~Company’s secured reserve-based revolving credit facility (the “RBL Facility”). The interest expense, net, incurred during the first quarter of 2020 was ~~$18.1 million for~~lower than the ~~Predecessor Period. During the~~first quarter of 2019 ~~Successor Period and the 2018 Successor Period, Magnolia has not engaged in any hedging activities with respect~~due to ~~the market risk to which the Company is exposed.~~higher interest income.

Liquidity and Capital Resources

Magnolia’s primary ~~sources~~source of liquidity and capital ~~have~~has been its cash flows from ~~operations and, at the close of the Business Combination, issuances of equity and debt securities.~~operations. The Company’s primary uses of cash have been for acquisitions of oil and natural gas properties and related assets, development of the Company’s oil and natural gas properties, and general working capital needs.

Magnolia believes that cash on hand, cash flows generated from operations, and the borrowings available under the RBL Facility will be adequate to fund Magnolia’s capital budget and satisfy the Company’s short-term liquidity needs.

The Company may also utilize borrowings under other various financing sources available to Magnolia, including its 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 or debt securities and the timing of these offerings will depend upon various factors, including prevailing market conditions and the Company’s financial condition.

The Company anticipates its current cash balance, cash flows from operations, and its available sources of liquidity to be sufficient to meet the Company’s cash requirements. However, as the impact of recent declines in worldwide crude oil and natural gas prices and the impact of COVID-19 on the economy evolves, the Company will continue to assess its liquidity needs. In the event of a sustained market deterioration, Magnolia may need additional liquidity, which would require the Company to evaluate available alternatives and take appropriate actions.

As of ~~September 30, 2019,~~March 31, 2020, the Company had $400.0 million of principal debt related to the 2026 Senior Notes outstanding and no outstanding borrowings related to the RBL Facility. As of ~~September 30, 2019,~~March 31, 2020, the Company ~~has $714.5~~had $696.5 million of liquidity comprised of the $550.0 million of borrowing base capacity of the RBL Facility and ~~$164.5~~$146.5 million of cash and cash equivalents.

A decrease in commodity prices may adversely affect proved reserves values which would likely result in a proved property impairment. Negative revisions of estimated reserves quantities, increases in future cost estimates or divestiture of a significant component In April 2020, the borrowing base capacity of the ~~asset group could also lead~~RBL facility was reduced to ~~a reduction in expected future cash flows and possibly an impairment of long-lived assets in future periods.~~$450.0 million.

Cash and Cash Equivalents

At ~~September 30, 2019,~~March 31, 2020, Magnolia had ~~$164.5~~$146.5 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,~~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 for the periods presented:

Successor Predecessor
(In thousands)
Nine Months Ended
September 30, 2019

July 31, 2018
Through
September 30, 2018

January 1, 2018 Through
July 30, 2018
Sources of cash and cash equivalents
Net cash provided by operating activities $ 488,611
$ 87,302
$ 284,812
Issuance of common stock —
355,000
—
Proceeds from issuance of debt —
400,000
—
Proceeds withdrawn from Trust Account —
656,078
—
Other 7,301
—
62,641
495,912
1,498,380
347,453
Uses of cash and cash equivalents:
Acquisition of EnerVest properties 4,250
(1,219,217 ) —
Acquisitions, other (93,221 ) (135,652 ) (150,139 )
Additions to oil and natural gas properties (364,859 ) (33,724 ) (197,314 )
Payment of Contingent Consideration —
(26,000 ) —
Repayments of deferred underwriting compensation —
(22,750 ) —
Cash paid for debt issuance costs —
(23,336 ) —
Repurchase of common stock (9,722 ) —
—
Other (3,629 ) (1,009 ) —
(467,181 ) (1,461,688 ) (347,453 )
Increase in cash and cash equivalents $ 28,731
$ 36,692
$ —



(In thousands)	Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
Sources of cash and cash equivalents
Net cash provided by operating activities	$	134,878		$	116,562
Other	—			11,748
	$	134,878		$	128,310
Uses of cash and cash equivalents:
Acquisitions, other	$	(69,390	)	$	(53,326	)
Additions to oil and natural gas properties	(94,210		)	(134,435		)
Class A Common Stock repurchase	(6,483		)	—
Other	(936		)	—
	(171,019		)	(187,761		)
Increase (decrease) in cash and cash equivalents	$	(36,141	)	$	(59,451	)

Sources of Cash and Cash Equivalents

~~Business Combination~~

The primary source of cash for the Business Combination in the 2018 Successor Period were proceeds from the issuance of common stock of $355 million, proceeds from issuance of debt of $400 million, and proceeds withdrawn from Trust account of $656.1 million related to the Company’s May 2017 initial public offering. See ~~Overview~~ ~~of this Item 2 for more information on the Business Combination.~~

Net ~~cash provided~~Cash Provided by ~~operating activities~~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 or net losses, with the exception of certain non-cash expenses such as DD&A, the non-cash portion of exploration expense, impairment of oil and natural gas properties, asset retirement obligation accretion, and deferred income tax expense.

Net cash provided by operating activities totaled ~~$488.6 million, $87.3~~$134.9 million and ~~$284.8~~$116.6 million for the ~~2019 Successor Period, 2018 Successor Period,~~three months ended March 31, 2020 and ~~Predecessor Period,~~2019, respectively. Cash provided by operating activities was positively impacted in the first quarter of 2020 by the ~~inclusion~~timing of ~~the Giddings Assets in the Successor Period but was~~collections, payment of liabilities, and lower production tax payments, partially offset by ~~interest expense payments, EnerVest service fee payments,~~decreased revenues from reduced oil and higher production tax payments. The 2018 Successor Period includes $22.4 million one-time transaction costs associated with the Business Combination, exploration expenses of $11.2 million primarily related to a one-time purchase of a seismic license continuation.natural gas prices.

Uses of Cash and Cash Equivalents

~~Business Combination~~

The primary use of cash in the 2018 Successor Period was the acquisition of EnerVest properties which included an aggregate of approximately $1.2 billion in cash, cash paid for debt issuance costs of $23.3 million, and the payment of a deferred underwriting compensation liability of approximately $22.8 million.

~~Other acquisitions~~Acquisitions

During the ~~2019 Successor Period,~~three months ended March 31, 2020, the Company completed various leasehold and property acquisitions, ~~for a total cash purchase price of $93.2 million,~~primarily comprised of ~~the Highlander~~a $71.3 million acquisition ~~and other acquisitions~~ of ~~additional~~certain non-operated oil and natural gas assets ~~primarily~~ located in Karnes ~~County. The 2018 Successor Period activity of $135.7~~and DeWitt Counties, Texas. During the three months ended March 31, 2019, the Company incurred $53.3 million is primarily comprised of the ~~Harvest Acquisition. The Predecessor Period activity of $150.1 million is comprised~~formation of the ~~Subsequent GulfTex Acquisition.~~Highlander joint venture.

Additions to ~~oil~~Oil and ~~natural gas properties~~Natural Gas Properties

The following table sets forth the Company’s capital expenditures for the ~~2019 Successor Period:~~three months ended March 31, 2020 and 2019:


(In thousands)	Nine Months Ended September 30, 2019		Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Drilling and completion	$	344,179	$	100,611	$	139,763
Leasehold acquisition costs	8,556		780		5,929
Total capital expenditures	$	352,735	$	101,391	$	145,692

InAs of March 31, 2020, Magnolia was running a one-rig program for the ~~third quarter of 2019, Magnolia operated two drilling rigs across its acreage, one rig in~~ Karnes County Assets and ~~one rig in~~a one-rig program for the Giddings ~~Field.~~Assets. The activity induring the ~~2019 Successor Period~~three months ended March 31, 2020 was largely driven by the number of operated and non-operated drilling rigs. The number of ~~operating~~operated drilling rigs is largely dependent on commodity prices and the Company’s strategy of maintaining spending ~~within 60% of adjusted EBITDAX.~~to accommodate the Company’s business model.

~~Payment of Contingent Consideration~~

~~Pursuant to the Giddings Purchase Agreement, during the 2018 Successor Period, the Company paid the Giddings Sellers a cash payment of $26.0 million to fully settle the earnout obligation.~~

Capital Requirements

Repurchase of ~~common stock~~Class A Common Stock

On August 5, 2019, the Company’s ~~Board~~board of ~~Directors~~directors authorized a share repurchase program of up to 10 million ~~shares.~~shares of Class A Common Stock. The program does not require purchases to be made within a particular ~~timeframe.~~timeframe and whether the Company undertakes these additional repurchases is ultimately subject to numerous considerations, market conditions, and other factors. During the ~~2019 Successor Period,~~first quarter of 2020, the Company repurchased ~~950 thousand~~1.0 million shares ~~at a weighted average price of $10.23,~~ for a total cost of approximately ~~$9.7~~$6.5 million.

Off-Balance Sheet Arrangements

As of ~~September 30, 2019,~~March 31, 2020, there were no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market ~~Risk.~~Risk

Interest Rate Risk

For variable rate debt, interest rate changes generally do not affect the fair market value of such debt, but do impact future earnings and cash flows, assuming other factors are held constant. The Company is subject to market risk exposure related to changes in interest rates on borrowings under the RBL Facility. Interest on borrowings under the RBL Facility is based on the LIBOR rate or alternative base rate plus an applicable margin as stated in the agreement. At ~~September 30, 2019~~March 31, 2020, the Company had no borrowings outstanding under the RBL Facility.

Commodity Price Risk

The Company has not engaged in, and does not expect to engage in, any hedging activities with respect to the market risk to which it is exposed.

Magnolia’s primary market risk exposure is to the prices it receives for its oil, natural gas, and NGL production. The prices the Company ultimately realizes for its oil, natural gas, and NGLs are based on a number of variables, including prevailing index prices attributable to the Company’s production and certain differentials to those index prices. Pricing for oil, natural gas, and NGLs has historically been volatile and unpredictable, and this volatility is expected to continue in the future. The prices the Company receives for

production depend on factors outside of its control, including physical markets, supply and demand, financial markets, and national and international policies. As the impact of recent declines in worldwide crude oil and natural gas prices and the impact of COVID-19 on the economy evolves, the Company will continue to assess its market risk exposure as appropriate. A $1.00 per barrel increase (decrease) in the weighted average oil price for the ~~nine months~~quarter ended ~~September 30, 2019~~March 31, 2020 would have increased (decreased) the Company’s revenues by approximately ~~$12.8~~$13.6 million on an annualized basis and a $0.10 per Mcf increase (decrease) in the weighted average natural gas price for the ~~nine months~~quarter ended ~~September 30, 2019~~March 31, 2020 would have increased (decreased) Magnolia’s revenues by approximately ~~$4.1~~$4.0 million on an annualized basis.

Item 4. Controls and ~~Procedures.~~Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, Magnolia has evaluated, under the supervision and with the participation of the Company’s management, including Magnolia’s principal executive officer and principal financial officer, the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~September 30, 2019.~~March 31, 2020. Based on such evaluation, Magnolia’s principal executive officer and principal financial officer have concluded that as of such date, its disclosure controls and procedures were effective. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by it in reports that it files under the Exchange Act is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC.

Changes toin Internal Control Over Financial Reporting

~~As of September 30, 2019, there have been~~There were no changes in ~~Magnolia’s~~the system of internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during the three months ended March 31, 2020 that have materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal ~~Proceedings.~~Proceedings

From time to time, the Company is party to certain legal actions and claims arising in the ordinary course of business. While the outcome of these events cannot be predicted with certainty, management does not currently expect these matters to have a materially adverse effect on the financial position or results of operations of the Company.

Item 1A. Risk ~~Factors.~~Factors

Please refer to Part I, Item IA - Risk Factors of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, and Part I, Item 3 - Quantitative and Qualitative Disclosures About Market Risk of this Quarterly Report on Form 10-Q. Any of these factors and the factors described below could result in a significant or material adverse effect on Magnolia’s business, results of operations, or financial condition. There have been no material changes to the Company’s risk factors since its Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019, except as updated below. Additional risk factors not presently known to the Company or that the Company currently deems immaterial may also impair its business, results of operations, or financial condition.

Recent COVID-19 and other pandemic outbreaks could negatively impact Magnolia’s business and results of operations.

The company may face additional risks related to the recent outbreak of COVID-19, which has been declared a “pandemic” by the World Health Organization. International, federal, state, and local public health and governmental authorities have taken extraordinary and wide-ranging actions to contain and combat the outbreak and spread of COVID-19 in regions across the United States and the world, including mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. To the extent COVID-19 continues or worsens, governments may impose additional similar restrictions. The full impact of COVID-19 is unknown and rapidly evolving. The outbreak and any preventative or protective actions that the Company or its customers may take in response to this virus may result in a period of disruption, including the Company’s financial reporting capabilities, its operations generally, and could potentially impact the Company’s customers, distribution partners, and third parties. In addition, most of the Company’s non-operational employees are now working remotely, which could increase the risk of security breaches or other cyber-incidents or attacks, loss of data, fraud, and other disruptions. Any resulting impacts from the outbreak cannot be reasonably estimated at this time, and may materially affect the business and the Company’s financial condition and results of operations. The extent and duration of such impacts will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

The supply and demand imbalance created by the outbreak of COVID-19 and recent actions of various oil producers relating to oil price and production controls could adversely affect Magnolia’s business, financial condition, results of operations, and ability to meet its expenditure obligations and financial commitments.

The prices Magnolia receives for its oil, natural gas, and NGL production will heavily influence its revenue, profitability, access to capital, future rate of growth, and the carrying value of its properties. Oil, natural gas, and NGLs are commodities, and their prices may fluctuate widely in response to market uncertainty and to relatively minor changes in the supply of and demand for oil, natural gas, and NGLs. Historically, oil, natural gas, and NGL prices have been volatile. Likewise, NGLs, which are made up of ethane, propane, isobutane, normal butane, and natural gasoline, each of which has different uses and pricing characteristics, have suffered significant recent declines in realized prices. In the three months ended March 31, 2020, benchmark prices for oil and natural gas declined significantly. These volatile conditions extended into the second quarter negatively impacting Magnolia’s realized price differentials. Should this volatility persist, Magnolia’s price realizations and production volumes could be negatively impacted.

The imbalance between the supply of and demand for oil, as well as the uncertainty around the extent and timing of an economic recovery, has caused extreme market volatility and a substantial adverse effect on commodity prices. The commodity price environment is expected to remain depressed based on over-supply, decreasing demand, and a potential global economic recession, as is evidenced by lower prices in the forward curve for oil for several years. Sustained periods of lower commodity prices, or further decreases, may

reduce Magnolia’s cash flow and borrowing ability and may result in write-downs of the carrying value of its properties. If Magnolia is unable to obtain needed capital or financing on satisfactory terms, its ability to develop future reserves could be adversely affected. Also, using lower prices in estimating proved reserves may result in a reduction in proved reserves volumes due to economic limits. In addition, sustained periods with lower oil and natural gas prices may adversely affect drilling economics and Magnolia’s ability to raise capital, which may require it to re-evaluate and postpone or eliminate its development program, and result in the reduction of some proved undeveloped reserves and related standardized measure. If Magnolia curtails its drilling program, the Company may be unable to hold leases that are scheduled to expire, which may further reduce reserves.

As a result, a substantial or extended decline in commodity prices may materially and adversely affect Magnolia’s future business, financial condition, results of operations, liquidity, and ability to finance planned capital expenditures. Furthermore, to the extent the COVID-19 pandemic adversely affects the Company’s business and financial results, it may also have the effect of heightening many of the other risks set forth in Part I, Item 1A - Risk Factors in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

The marketability of Company production is dependent upon market demand, vehicles, transportation and storage facilities, and other facilities, most of which the Company does not control. If these vehicles or facilities are unavailable, or if the Company is unable to access such vehicles or facilities on commercially reasonable terms, operations could be interrupted, production could be curtailed or shut in, and revenues could be reduced.

The marketing of oil, natural gas, and NGL production depends in large part on the availability, proximity, and capacity of trucks, pipelines, and storage facilities, gas gathering systems, and other transportation, processing, and refining facilities, as well as the existence of adequate markets. Because of the significantly reduced demand for oil and natural gas as a result of the COVID-19 pandemic and the current oversupply of oil and natural gas in the market, available storage and transportation capacity for the Company’s production may be limited or completely unavailable in the future. If there is insufficient capacity, if the capacity is unavailable to the Company, or if the capacity is unavailable on commercially reasonable terms, the prices Magnolia receives for its production could be significantly depressed.

As a result of continued or further storage and/or market shortages, the Company could be forced to shut in some or all of its production or delay or discontinue drilling plans and commercial production following a discovery of hydrocarbons while the Company constructs or purchases its own facilities or system. If the Company is forced to shut in production, it will likely incur greater costs to bring the associated production back online. Cost increases necessary to bring the associated wells back online may be significant enough that such wells may become non-economic at low commodity price levels, which may lead to decreases in proved reserve estimates and potential impairments and associated charges to earnings. If the Company is able to bring wells back online, there is no assurance that such wells will be as productive following recommencement as they were prior to being shut in.

Item 2. Unregistered Sales of Equity Securities and Use of ~~Proceeds.~~Proceeds

The following table sets forth the Company’s share repurchase activities for each period presented.

Period Number of Shares of Class A Common Stock Purchased Average Price Paid per Share
Total Number of Common Shares Purchased as Part of Publicly Announced Program ⁽¹⁾⁽²⁾
Maximum Number of Common Shares that May Yet be Purchased Under the Program
July 1, 2019 - July 31, 2019 —
$ —
—
—
August 1, 2019 - August 31, 2019 600,000
10.07
600,000
9,400,000
September 1, 2019 - September 30, 2019 350,000
10.52 350,000
9,050,000
Total 950,000
$ 10.23
950,000
9,050,000



Period	Number of Shares of Class A Common Stock Purchased	Average Price Paid per Share		Total Number of Shares of Class A Common Stock Purchased as Part of Publicly Announced Program ⁽¹⁾	Maximum Number of Shares of Class A Common Stock that May Yet be Purchased Under the Program
January 1, 2020 - January 31, 2020	—	$	—	—	9,000,000
February 1, 2020 - February 29, 2020	100,000	7.55		100,000	8,900,000
March 1, 2020 - March 31, 2020	900,000	6.36		900,000	8,000,000
Total	1,000,000	$	6.48	1,000,000	8,000,000


(1)	In August 2019, the Company’s ~~Board~~board of ~~Directors~~directors authorized a share repurchase program of up to 10 million ~~shares.~~


~~(2)~~	~~On September 30, 2019, the Company repurchased 50,000 additional~~ shares ~~that did~~of Class A Common Stock. The program does not ~~settle until October 2, 2019 and are not included in the table above.~~require purchases to be made within a particular time frame.

Item 3. Defaults Upon Senior ~~Securities.~~Securities

None.

Item 4. Mine Safety ~~Disclosures.~~Disclosures

Not applicable.

Item 5. Other ~~Information.~~Information

~~None.~~Not applicable.

Item 6. ~~Exhibits.~~Exhibits

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form ~~10-Q.~~

10-Q:



Exhibit Number		Description

~~3.1~~3.1*		Second Amended and Restated Certificate of Incorporation of the Company, dated as of July 31, 2018 (incorporated herein by reference to Exhibit 3.1 filed with the Current Report on Form 8-K filed on August 6, 2018 (File No. 001-38083)).

~~3.2~~3.2*		Bylaws of the Company (incorporated herein by reference to Exhibit 3.3 filed with the Registration Statement on Form S-1 filed on April 17, 2017 (File No. 333-217338)).

~~4.1~~10.1**		Form of 2020 Non-Employee Director Restricted Stock Unit Grant Notice and attached Restricted Stock Unit Agreement under the Magnolia Oil & Gas Corporation Long Term Incentive Plan.

10.2**		Magnolia Oil & Gas Corporation Stock Purchase Program.

10.3**		First Amendment ~~No. 1~~ to ~~Warrant~~Services Agreement, by and between Magnolia Oil & Gas Corporation and EnerVest Operating LLC, dated as of May 4, 2017, by and between the Company and the Continental Stock Transfer & Trust Company (incorporated herein by reference to Exhibit 4.1 filed with the Current Report on Form 8-K filed on July 10, 2019 (File No. 001-38083)).1, 2020.

31.1**		Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2**		Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1***		Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**		XBRL Instance ~~Document~~Document.

101.SCH**		XBRL Taxonomy Extension Schema ~~Document~~Document.

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase ~~Document~~Document.

101.DEF**		XBRL Taxonomy Extension Definition Linkbase ~~Document~~Document.

101.LAB**		XBRL Taxonomy Extension Label Linkbase ~~Document~~Document.

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase ~~Document~~Document.

104**		Cover Page Interactive Data File (embedded within the Inline XBRL document).


*	Incorporated herein by reference as indicated.


**	Filed herewith.


***	Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	MAGNOLIA OIL & GAS CORPORATION

Date: ~~November 5, 2019~~May 11, 2020	By:	/s/ Stephen Chazen
		Stephen Chazen
		Chief Executive Officer (Principal Executive Officer)

Date: ~~November 5, 2019~~May 11, 2020	By:	/s/ Christopher Stavros
		Christopher Stavros
		Chief Financial Officer (Principal Financial Officer)



	Successor
	September 30, 2019			December 31, 2018
ASSETS	(Unaudited)			(Audited)
CURRENT ASSETS
Cash and cash equivalents	$	164,489		$	135,758
Accounts receivable	120,664			140,284
Drilling advances	2,055			12,259
Other current assets	5,047			4,058
Total current assets	292,255			292,359
PROPERTY, PLANT AND EQUIPMENT
Oil and natural gas properties	3,741,357			3,250,742
Other	2,710			360
Accumulated depreciation, depletion and amortization	(563,901		)	(177,898		)
Total property, plant and equipment, net	3,180,166			3,073,204
OTHER ASSETS
Deferred financing costs, net	8,980			10,731
Equity method investment	19,482			18,873
Intangible assets, net	27,477			38,356
Other long-term assets	4,773			—
TOTAL ASSETS	$	3,533,133		$	3,433,523
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	186,627		$	196,357
Other current liabilities	3,684			1,004
Total current liabilities	190,311			197,361
LONG-TERM LIABILITIES
Long-term debt, net	389,528			388,635
Asset retirement obligations, net of current	93,102			84,979
Deferred taxes, net	74,200			54,593
Other long-term liabilities	2,039			—
Total long-term liabilities	558,869			528,207
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDERS’ EQUITY
Class A Common Stock, $0.0001 par value, 1,300,000 shares authorized, 168,260 shares issued and 167,310 shares outstanding in 2019 and 156,333 shares issued and outstanding in 2018	17			16
Class B Common Stock, $0.0001 par value, 225,000 shares authorized, 91,790 and 93,346 shares issued and outstanding in 2019 and 2018, respectively	9			9
Additional paid-in capital	1,704,652			1,641,237
Treasury Stock, at cost, 950 shares in 2019	(9,722		)	—
Retained earnings	74,823			35,507
Noncontrolling interest	1,014,174			1,031,186
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,533,133		$	3,433,523



	Predecessor
BALANCE, DECEMBER 31, 2017	$	1,597,838
Parents’ contribution, net	133,117
Net income	85,366
Balance – March 31, 2018	$	1,816,321
Parents’ distributions, net	(48,937		)
Net income	86,449
Balance – June 30, 2018	$	1,853,833
Parents’ distributions, net	(21,539		)
Net income	46,738
Balance – July 30, 2018	$	1,879,032



	Class A Common Stock				Class B Common Stock			Class F Common Stock					Additional Paid In Capital			Retained Earnings			Total Stockholders’ Equity			Noncontrolling Interest			Total Equity
	Shares		Value		Shares	Value		Shares		Value
Balance, July 30, 2018	3,052		$	—	—	$	—	16,250		$	2		$	8,370		$	(3,588	)	$	4,784		$	—		$	4,784
Class A Common Stock released from possible redemption	61,948		6		—	—		—		—			619,473			—			619,479			—			619,479
Class A Common Stock redeemed	(1	)	—		—	—		—		—			(9		)	—			(9		)	—			(9		)
Conversion of Common Stock from Class F to Class A at closing of Business Combination	16,250		2		—	—		(16,250	)	(2		)	—			—			—			—			—
Common stock issued as part of the Business Combination	31,791		3		83,939	9		—		—			391,017			—			391,029			1,032,455			1,423,484
Common stock issued in private placement	35,500		4		—	—		—		—			354,996			—			355,000			—			355,000
Earnout consideration issued as part for the Business Combination	—		—		—	—		—		—			41,371			—			41,371			108,329			149,700
Non-compete consideration	—		—		—	—		—		—			44,400			—			44,400			—			44,400
Changes in ownership interest adjustment	—		—		—	—		—		—			206,966			—			206,966			(206,966		)	—
Changes in deferred tax liability	—		—		—	—		—		—			(52,787		)	—			(52,787		)	—			(52,787		)
Balance, July 31, 2018	148,540		$	15	83,939	$	9	—		$	—		$	1,613,797		$	(3,588	)	$	1,610,233		$	933,818		$	2,544,051
Issuance of earnout share consideration Tranche I	1,244		—		3,256	—		—		—			—			—			—			—			—
Issuance of earnout share consideration Tranche II	1,244		—		3,256	—		—		—			—			—			—			—			—
Common stock issued in connection with Harvest Acquisition	4,200		1		—	—		—		—			58,211			—			58,212			—			58,212
Net income	—		—		—	—		—		—			—			6,176			6,176			18,465			24,641
Changes in ownership interest adjustment	—		—		—	—		—		—			(39,366		)	—			(39,366		)	39,366			—
Changes in deferred tax liability	—		—		—	—		—		—			15,263			—			15,263			—			15,263
Balance, September 30, 2018	155,228		$	16	90,451	$	9	—		$	—		$	1,647,905		$	2,588		$	1,650,518		$	991,649		$	2,642,167



(In thousands)
Purchase Consideration:
Cash consideration	$	1,214,966
Stock consideration ⁽¹⁾	1,398,238
Fair value of contingent earnout purchase consideration⁽²⁾	169,000
Total purchase price consideration	$	2,782,204



(In thousands)
Fair value of assets acquired
Accounts receivable	$	61,790
Other current assets	2,853
Oil and natural gas properties ⁽¹⁾	2,813,140
Ironwood equity investment	18,100
Total fair value of assets acquired	2,895,883
Fair value of liabilities assumed
Accounts payable and other current liabilities	(65,908		)
Asset retirement obligations	(34,132		)
Deferred tax liability	(13,639		)
Fair value of net assets acquired	$	2,782,204



	(Unaudited Pro Forma) (In thousands)
	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
Total revenues	$	267,659	$	723,768
Net income attributable to Class A Common Stock	57,891		151,316
Net income per share - basic	0.39		1.02
Net income per share - diluted	0.38		0.98



(In thousands)
Purchase price allocation:
Accounts receivable	$	10,501
Proved oil and natural gas properties	118,572
Unproved oil and natural gas properties	22,802
Accounts payable and accrued liabilities	(1,679		)
Asset retirement obligations	(57		)
	$	150,139



(In thousands)	September 30, 2019
Operating Leases
Operating lease assets	$	4,772

Operating lease liabilities - current	$	2,724
Operating lease liabilities - long-term	2,039
Total operating lease liabilities	$	4,763

Weighted average remaining lease term (in years)	2.0
Weighted average discount rate	3.8		%



(In thousands)
Maturity of Lease Liabilities⁽¹⁾	Operating Leases
2019 (remaining)	$	771
2020	2,653
2021	1,170
2022	165
2023	98
After 2023	91
Total lease payments	$	4,948
Less: Interest	(185		)
Present value of lease liabilities	$	4,763