Magnolia Oil & Gas (MGY) to Acquire Giddings Assets for $300M
Magnolia Oil & Gas Corporation MGY, an independent oil and gas company, recently announced that it has entered into a purchase agreement to acquire certain oil and gas producing properties, including leasehold and mineral interests in Giddings, TX, for $300 million. This acquisition is not just about numbers, it's about enhancing quality, scale and financial metrics. The deal is anticipated to be finalized in the fourth quarter of 2023.
Transaction Details
The buyout is subject to customary closing conditions, including the approval of the Federal Energy Regulatory Commission. MGY expects to fund the acquisition with cash on hand and borrowings under its revolving credit facility.
Enhancing Giddings Asset Quality and Scale
Magnolia Oil & Gas' acquisition includes approximately 48,000 net acres in Giddings, with an impressive 96% operated and 91% working interest. This move significantly augments the company’s already substantial level of development opportunities in the area. When combined with a smaller acquisition that closed earlier in July 2023, MGY's presence in Giddings now encompasses more than 500,000 net acres. This strategic expansion promises to drive further efficiencies of scale for the company.
High-Margin Production
The deal is expected to boost the company’s production to approximately 5,000 barrels of oil equivalent per day (Boe/d) at closing, with more than 70% of that being oil. This high-margin production aligns with the company's existing Giddings position, offering robust cash operating margins.
The key to this profitability lies in access to premium Gulf Coast pricing and exceptionally low per-unit operating costs. The acquisition will also help Magnolia Oil & Gasachieve its goal of becoming a leading independent oil and gas producer in the Permian Basin and the Eagle Ford Shale.
Impact on Shareholders
The acquisition is expected to be immediately accretive to the company's cash flow, free cash flow and earnings. It is also expected to enhance MGY’s position in the Giddings field, which is one of the company's core areas of focus.
Strengthening High-Return Inventory
One of the most promising aspects of this acquisition is the inclusion of attractive development locations in both the Eagle Ford and Austin Chalk formations. These locations are expected to be seamlessly integrated into Magnolia Oil & Gas’ ongoing Giddings development program, which is set to begin in 2024. This integration ensures that the acquired asset sustains its high-margin production and continues to generate free cash flow.
Conclusion
MGY's strategic acquisition of Giddings is a testament to its commitment to growth, profitability, and shareholder value. This bold move not only enhances the company’s asset quality and scale but also promises high-margin production. With a strong balance sheet and a clear vision, Magnolia Oil & Gascontinues to position itself as a key player in the oil and gas industry.
Zacks Rank and Key Picks
Currently, MGY carries a Zacks Rank #3 (Hold).
Some better-ranked stocks for investors interested in the energy sector are CVR Energy CVI, sporting a Zacks Rank #1 (Strong Buy), and Evolution Petroleum EPM and Archrock AROC, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
CVR Energy (CVI) is valued at around $3.50 billion. In the past year, its shares have risen 5.3%.
CVI currently pays a dividend of $2 per share, or 5.75% on an annual basis. Its payout ratio currently sits at 30% of earnings.
Evolution Petroleum is worth approximately $295.76 million. EPM currently pays a dividend of 48 cents per share, or 5.40% on an annual basis.
The company currently has a forward P/E ratio of 8.23. In comparison, its industry has an average forward P/E of 17.70, which means EPM is trading at a discount to the group.
Archrock is valued at around $2.03 billion. It delivered an average earnings surprise of 15.08% for the last four quarters and its current dividend yield is 4.79%.
Archrock is a provider of natural gas contract compression services and aftermarket services of compression equipment.
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