U.S. Shale Producer Magnolia Looks to Triple Market Footprint

U.S. oil producer Magnolia Oil & Gas Corp aims to at least triple in market valuation in coming years as it develops shale acreage across eastern and southern Texas, Chief Executive Steve Chazen said on Wednesday.

Magnolia's shares have rallied about 33 percent this year alongside a rise in crude prices and as the company has focused on shareholder returns amidst rising pressure from Wall Street on the sector.

The company, formed earlier this year by private equity firm TPG Capital and Chazen, the former Occidental Petroleum (OXY) CEO, has been amassing acreage across the oil-rich Eagle Ford shale formation and the Austin Chalk limestone and clay formation.

"The oil industry is about money, not about romance," Chazen said in an interview. "Our model is to live within cash flow."

Magnolia's market valuation of $3.24 billion likely could grow to between $10 billion to $12 billion in coming years, Chazen said, adding that such a level would be a manageable size to oversee as CEO.

Chazen declined to comment on when that level could be reached, but the company expects to double in size without acquisitions within five years.

"Our end game is to build our company to a rational size, and if we continue to grow and generate excess cash flow, to return cash to shareholders," he said.

Magnolia, which pumps more than 46,000 barrels of oil equivalent per day, invests less than 60 percent of its cash flow into drilling and other operations, saving the rest for growth opportunities and other uses.

The Austin Chalk, which lies atop the Eagle Ford in parts of Texas, is undergoing a renaissance of sorts as oil producers, Magnolia included, deploy technology developed in the shale boom.

Magnolia, which operates more than 360,000 acres, added to its holdings in the area earlier this month in a $200 million cash-and-stock purchase of acreage from privately held Harvest Oil & Gas.

Production from the Austin Chalk jumped to 57,000 barrels per day (bpd) last year from 3,000 bpd five years ago, according to consultancy Wood Mackenzie, which expects the production gains to continue.

Unlike some rivals, Magnolia has not invested in the Permian Basin of West Texas and New Mexico, the largest U.S. oilfield. Chazen's former company, Occidental, is the Permian's largest oil producer, but that company bought much of its acreage years ago before land prices spiked.

"New entrants in the Permian have a less-privileged position because they have to pay a lot to get there," Chazen said. "The Eagle Ford and Austin Chalk are less popular, but the acreage costs are more reasonable." (Reporting by Ernest Scheyder