Magnolia Oil & Gas Corp (MGY) stock intrinsic value fair value estimate & owner earnings analysis

Magnolia Oil & Gas produces oil, natural gas and natural gas liquids from two areas of South Texas: the Karnes area, in the core of the Eagle Ford Shale, and the Giddings area of the Austin Chalk. It carries modest debt: $400 million of 6.875% senior notes due 2032 and no borrowings on its credit facility at year-end 2025. How we measure earnings. We start with cash from operations, take out swings in working capital, subtract stock compensation as a real cost, and subtract the drilling spending needed to keep production going. Part of each year's drilling spending is treated as growth spending when revenue rises, so it is not charged against the earnings the business needs just to stand still. The result was $0.96 per share in 2019, $0.40 in 2020, $2.98 in 2021, $4.45 in 2022, $2.05 in 2023, $2.22 in 2024 and $2.14 in 2025. Per-share figures include the Class B shares that can be exchanged into Class A shares, because the company's cash flow belongs to both. The 2021 and 2022 figures are lifted by the method: revenue rose sharply ($541 million in 2020, $1,078 million in 2021, $1,694 million in 2022), so a large part of drilling spending was classed as growth. The 2020 figure reflects revenue falling from $942 million to $541 million. Using all seven years captures a full price cycle, and the middle value is $2.14 per share. That is our starting level, and owner earnings per share were above $2.00 in five of the seven years. Growth. Owner earnings per share fell 3.5% in 2025 ($2.14 versus $2.22) even though production rose 11% to 36.4 million barrels of oil equivalent, because the average oil price used in the year-end reserve report dropped to $64.59 from $74.87. We start year one at $2.14, which is flat rather than falling 3.5% again. The reason is that $2.14 is the median of the seven-year record, not a lifted number, and the first half of 2026 (revenue $837 million versus $669 million a year earlier, operating cash flow $582 million versus $423 million) shows the level is not eroding. We did not raise the level for that improvement. What keeps the earnings going. Magnolia's proved reserves were 210.2 million barrels of oil equivalent at year-end 2025, about 5.8 years of current production. On its own that is short. The evidence that matters is replacement: reserves rose from 157.0 million at year-end 2022 to 210.2 million at year-end 2025 even after producing 99.3 million over those three years. New drilling and revisions added about 30.5, 48.0 and 51.8 million barrels of oil equivalent in 2023, 2024 and 2025, against production of 30.1, 32.8 and 36.4 million (roughly 101%, 146% and 142%), funded from its own cash flow, mainly in the Karnes and Giddings areas. That record is only three years, so we credit continuation for a limited time and then fade. Base case ($20.5 per share). Owner earnings stay flat at $2.14 per share for ten years, then decline in a straight line to zero over the following ten years. We give no credit for production growth, because 2025 showed volume growth did not lift earnings when prices fell, and no credit for share buybacks, which are valuable only if made below value. Bear case ($8.3 per share). Earnings drop to about $1.00 per share, close to 2019's $0.96 and above 2020's $0.40, for eight years and then fade to zero over eight more. This reflects what happened the last time prices were low, and the concentration in the filings: one purchaser took 41% of 2025 oil, gas and liquids revenue and a second took 20%. The fixed cost of the $400 million notes also weighs more in a low-price stretch, although it is small next to $879 million of 2025 operating cash flow. Bull case ($32.0 per share). Earnings grow 4% a year for ten years from $2.14, stay flat for five years, then fade to zero over ten years. Four percent is well below the 9% and 11% production growth achieved in 2024 and 2025 and rests on the same funded drilling program that has already added reserves faster than production. What we did not include: higher oil or gas prices, new areas or acquisitions, and any earnings beyond what the fade allows. Bolt-on acquisitions have been small ($66.6 million in 2025) and are not credited. Cross-check. The company's own year-end estimate of the discounted after-tax value of its proved reserves alone, at that year's prices, was $2.52 billion, or about $13.50 per share on 186.4 million Class A and Class B shares. It covers only reserves already proven, with no value for future drilling, which is why it sits below our base case. What could make this wrong: the reserve replacement of 2024 and 2025 may not last beyond the inventory of drilling sites, which we could not size from the filing; a long period of low prices; or loss of one of the two largest purchasers. The margin-of-safety price is $10.00; from that price the base case implies about a 20% annual return, and the price is not far above the bear case.