Magnolia Oil & Gas Corp. announced on Sept. 5 it has entered into a definitive purchase agreement with an undisclosed seller for the acquisition of oil and gas producing properties, including leasehold and mineral interests, in Giddings, Texas, for $300 million.
The acquisition adds 48,000 net acres to Magnolia’s position in Giddings, 96% operated and 91% working interest. Combined with a smaller acquisition made by Magnolia in July, Magnolia now holds over 500,000 net acres in Giddings. Development locations in the Eagle Ford Shale and Austin Chalk formations will supplement Magnolia’s ongoing Giddings development program.
“We continue to leverage our accumulated knowledge and advanced understanding of Giddings by adding bolt-on oil and gas properties to expand our portfolio of high-quality opportunities and improve the overall business,” Magnolia President and CEO Chris Stavros said in the company’s press release. “Today’s transaction is a natural strategic fit for Magnolia and meets both the financial and operational characteristics we look for in a bolt-on acquisition that can be easily integrated into our Giddings development program. Magnolia’s acreage in Giddings now totals more than half a million net acres, with a development area of more than 150,000 net acres.”
The company expects high-margin production and immediate accretion with the acquisition. With its access to Gulf Coast pricing and low per-unit operating costs, Magnolia is looking for high cash operating margins and production to be approximately 5,000 boe/d at closing. The assets are valued at 2.9x estimated 2024 EBITDA and expected to generate a free cash flow yield of more than 20% during 2024 at current strip prices.
The acquisition’s cash outlay at closing will be funded with cash on hand and is expected to be approximately $260 million, adjusted for the free cash flow generated by assets between July 1 and the closing date in fourth quarter 2023. Cash on hand was $677 million as of June 30. The seller may also receive up to a maximum of $40 million in additional cash consideration through December 2025 depending on future commodity prices.
“Our business model is reinforced by capital discipline and provides for significant free cash flow generation through the cycle,” Stavros said. “This acquisition allows us to opportunistically deploy some of our additional cash into assets that generate high financial returns, increase our dividend per share payout capacity and enhance value for our shareholders.”
Magnolia is a publicly traded oil and gas E&P with operations primarily in South Texas in the Eagle Ford and Austin Chalk.