Magnolia Oil & Gas Corp. has agreed to acquire about 48,000 net acres in the Giddings oil and gas field in South Texas from an undisclosed seller for $300 million.
The acreage includes both leasehold and mineral interests, and would bring Magnolia’s position in Giddings to more than 500,000 net acres.
Magnolia expects the assets to be producing about 5,000 boe/d (more than 70% oil) at the time of closing, which is anticipated in the fourth quarter.
“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,” said CEO Chris Stavros. The 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 cash outlay at closing is expected to be about $260 million. “The seller may also receive up to a maximum of $40 million in additional contingent cash consideration through December 2025 based on future commodity prices,” management said.
Houston-based Magnolia noted that, “Similar to the company’s current Giddings position, the acquired assets provide high cash operating margins through access to premium Gulf Coast pricing and low per-unit operating costs.”
Management added, “Attractive development locations in both the Eagle Ford and Austin Chalk formations are expected to be seamlessly folded into Magnolia’s ongoing Giddings development program beginning in 2024, allowing the asset to sustain its high margin production and free cash flow generation.”
Magnolia operates primarily in the core of the Eagle Ford Shale and Austin Chalk formation. It has touted the Giddings field, meanwhile, as an “emerging, high-growth asset with extensive inventory potential and significant development flexibility.”
Stavros noted, “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…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 reported production at Giddings of 57,500 boe/d during the second quarter of 2023, up 30% year/year.
Upon announcing its 2Q2023 results, the company said it “continues to operate two drilling rigs and expects to maintain this level of activity throughout the year. One rig will continue to drill multi-well development pads in our Giddings area.”
The second rig, meanwhile, “will drill a mix of wells in both the Karnes and Giddings areas, including some appraisal wells at Giddings. For 2023 in Giddings, we currently expect to average approximately 4 wells per pad with average lateral lengths of approximately 8,000 feet.”
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