Magnolia Oil & Gas upgraded to ’BB-’ by S&P on strong credit measures

Investing.com -- S&P Global Ratings has upgraded Magnolia Oil & Gas Corp. to ’BB-’ from ’B+’ with a stable outlook, citing the company’s track record of maintaining strong credit measures and prudent financial policies.

The rating agency noted that Magnolia targets leverage below 1.0x (debt to EBITDAX) and follows a disciplined capital allocation strategy, limiting capital spending to 55% of annual EBITDAX while returning capital to shareholders through dividends and share repurchases.

This approach has enabled Magnolia to generate strong free cash flow, even during periods of lower commodity prices, while increasing production by approximately 60% since 2018. S&P expects the company’s funds from operations (FFO) to debt to remain above 100% and debt to EBITDA below 1.0x over the next two years.

Magnolia maintains a conservative balance sheet with $400 million of 6.875% senior unsecured notes due 2032, an undrawn $450 million reserve-based lending facility maturing in 2029, and approximately $252 million in cash as of the end of the second quarter of 2025.

S&P projects Magnolia will expand production by 10% this year, reaching approximately 99,000 barrels of oil equivalent per day (about 69% liquids), with capital expenditure of $430 million-$470 million. The company plans to defer roughly six well completions into 2026 to maintain operational flexibility.

Magnolia has demonstrated a disciplined approach to shareholder returns, with long-term annual dividend growth averaging about 10% and a goal of repurchasing at least 1% of outstanding shares each quarter. The company returned about 90% of excess cash flow in 2024 and approximately 72% of free operating cash flow in the second quarter of 2025.

S&P anticipates Magnolia will return about 85% of its annual free operating cash flow going forward, with remaining discretionary cash flow likely allocated toward small accretive bolt-on acquisitions in South Texas. The company has completed about $40 million of acquisitions year to date, bringing total acquisition spending to about $650 million since 2022.

Despite steady production expansion, Magnolia’s size and scale remain smaller than similarly rated peers. As of year-end 2024, the company had 192 million barrels of oil equivalent of proved reserves, with about 78% classified as proved developed. All reserves and production are located in South Texas, specifically in the Eagle Ford Shale and Austin Chalk formations.

The stable outlook reflects S&P’s view that Magnolia will maintain strong credit measures over the next two years while expanding its production base and demonstrating a conservative financial policy.

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