マグノリア・オイル＆ガス（MGY）2026年第3四半期決算説明会：ワイルドファイアのシナジー効果が加速

主要ポイント

• Magnolia Oil & Gasが発表した2026年第3四半期の調整後純利益は1億6,600万ドル（希薄化後1株当たり0.71ドル）、調整後EBITDAXは3億9,200万ドルとなった。9月10日の買収完了に伴い、当四半期にはWildFireの所有期間が20日間のみ含まれている。
• 調整後フリーキャッシュフローは2億2,400万ドルに達した。掘削・仕上げ（D&C）設備投資額は1億4,700万ドルで、調整後EBITDAXの38%に相当した。
• 総生産量は前年同期比17%増の日量11万7,300 BOEとなった。原油生産量は同24%増の日量4万9,100バレルに拡大した。
• Magnoliaは4,300万ドルの配当と6,000万ドルの自社株買いを通じて約1億300万ドルを株主に還元した。当四半期中には230万株を買い戻した。
• 純有利子負債はWildFireの買収完了時点から1億ドル減少し、四半期末時点で約19億ドルとなった。経営陣は、現在の資源価格水準が続けば、2027年初頭に4億3,500万ドルのリボルビング信用枠残高を完済できると見込んでいる。
• WildFireの統合は当初の想定を上回るペースで進展している。Magnoliaは、年間換算で1億ドル超と見込まれるランレート・シナジーのうち、2026年末までに少なくとも3分の1、2027年半ばまでに少なくとも4分の3を実現する見通しだ。

主要財務データ

事業および操業実績

ギディングス（Giddings）地域の生産量は前年同期比23%増の日量9万7,700 BOEとなり、全社総生産量の約83%を占めた。ギディングスの原油生産量は同39%増の日量3万7,300バレルに増加した。第4四半期にはWildFireの業績が四半期を通じて寄与するため、ギディングス地域が生産量に占める割合はさらに拡大する見込みだ。

カーンズ（Karnes）地域の生産量は日量約2万 BOEとなった。Magnoliaはフリーキャッシュフローを創出しながら、この水準を長期にわたって維持できると見込んでいる。

WildFireの統合は予定通りに進んでいる。Magnoliaはリグ4基と仕上げクルー2組を稼働させながら、掘削、仕上げ、地下評価作業を自社の運用モデルへと移行させている。特定されたD&Cシナジーは1井戸当たり少なくとも100万ドルに達し、調達コスト削減、掘削の迅速化、マルチウェルパッドの導入、仕上げの最適化、砂コストの低減などが寄与している。砂鉱山を自社保有していることで、砂コストは約3分の1削減されている。

経営陣によると、買収前の旧WildFire鉱区におけるオースティン・チョーク（Austin Chalk）層の初期結果は有望だった。Magnoliaはギディングスの正味125万エーカーの鉱区全体で、さらなる評価・境界画定（デリニエーション）を計画している。開発プログラムは依然として初期段階にあるものの、今回の初期結果は買収時の基本分析で想定されていた水準を上回るインベントリの潜在性を裏付けるものだとしている。

また、Magnoliaは西部イーグルフォードの非中核資産を4,750万ドルで売却し、主にゴンザレス郡およびカーンズ地域で正味616エーカーを取得した。この取引により、当該操業鉱区ブロックにおけるワーキング・インタレスト（操業権益比率）は約98%に上昇し、平均ネット・レベニュー・インタレスト（正味収益権益比率）は80%となった。

経営陣の業績ガイダンス

2026年第4四半期について、経営陣は以下のガイダンスを維持した。

• D&C設備投資額：約2億3,500万ドル
• 総生産量：日量15万9,000〜16万1,000 BOE
• 原油比率：49%〜50%
• 原油販売価格：マゼラン・イースト・ヒューストン（MEH）指標価格に対して1バレル当たり2ドルのディスカウント
• 完全希薄化後株式数：約2億6,600万株
• 実効税率：約21%（2026年第4四半期および2027年の現金納税額はごくわずかとなる見込み）

2027年通期について、Magnoliaは総生産量および原油生産量の双方が4%〜5%のオーガニック成長を達成するとの見通しを維持している。設備投資予算はリグ4基と仕上げクルー2組の稼働を前提に9億〜9億5,000万ドル（調整後EBITDAXの55%未満）を据え置いた。経営陣は生産維持に必要な設備投資額（メンテナンス・キャピタル）を約8億ドルと試算している。

2027年に計画されている掘削比率は、オースティン・チョーク層が約65%、イーグルフォード層が約35%である。旧WildFire鉱区の開発井については、両地層にほぼ均等に配分される見込みだ。

リスク要因と注視事項

経営陣は、2027年の予備的設備投資計画に油田サービスコストの1桁台半ばのインフレを織り込んだ。この前提にはリグ、水圧破砕（フラクチャリング）サービス、油井管（OCTG）が含まれ、鉄鋼関税に伴う輸入価格の上昇圧力も対象としている。Magnoliaは機材の代替、砂コストの削減、デュアル燃料フラクチャリングの採用、フィールドガス利用の試験運用を通じて、これらのコスト圧力を相殺することを目指している。

同社は、原油価格が急落した場合の負債返済原資を支えるため、下限価格（フロア価格）70〜75ドルのコストレス・原油カラー取引を追加した。ヘッジポートフォリオには、WildFireから引き継いだ原油スワップも含まれている。経営陣は現時点でこれ以上のヘッジ追加は見込んでいない。

WildFireの統合およびシナジー創出は予定より前倒しで進んでいるものの、一部のコスト削減効果、特に井戸コストの低減は2027年上半期により顕在化する見込みだ。また、Magnoliaは最近3D地震探査データを購入しており、詳細な解析は2027年後半に行われる予定である。

経営陣は、WildFireの買収に伴い発行された株式による潜在的な売り圧力の存在を認めた。取締役会は自社株買いの授権枠を1,500万株拡大し、現在の発行済株式数の8.5%近くに相当する2,260万株の買い戻し枠を残している。

アナリスト質疑応答の要点

• WildFire買収取引と株価動向：経営陣は、WildFireが四半期を通じて業績に寄与する時期および2027年を通じて、統合会社の営業利益率、原油比率、事業の実行力がより明確になるはずだと述べた。また、自社株買い枠の拡大は、機動的または大規模なブロック取引（大口買い付け）を実施するための柔軟性をもたらすと説明した。
• シナジー発現の時期：統合ペースの加速は、機材の変更、人員配置の進展、現場操業の改善、Magnoliaの運用手順の導入を反映している。井戸コスト削減の効果は、2027年第1四半期および第2四半期により顕在化する見通しだ。
• オースティン・チョーク層のインベントリ：経営陣の確信が強まった主因は、Magnoliaの既存のギディングス北部と南部の操業エリアに挟まれた未開発鉱区にある。ウッドバイン（Woodbine）層などの追加の地層も長期的な機会として残されているが、Magnolia自身による実地テストはまだ行われていない。
• 2027年開発計画：WildFireのイーグルフォード層鉱区はすでに十分に評価・境界画定（デリニエーション）が進んでいるため、当面の評価活動はオースティン・チョーク層により重点を置く。本格的な埋蔵量評価（アプレイザル）活動は、より後の段階で実施される見通しだ。
• イーグルフォード層への配分：経営陣は、2027年の全社操業活動の約10%〜15%がカーンズ地域のイーグルフォード層に向けられる可能性があり、さらにギディングス地域でもイーグルフォード層の追加掘削を行う方針を示した。

決算説明会トランスクリプト全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good morning, everyone, and thank you for participating in Magnolia Oil & Gas Corporation's third quarter 2026 earnings conference call. My name is Chloe, and I will be your moderator for today's call. [Operator Instructions] The call is being recorded. I will now turn the call over to Magnolia's management for their prepared remarks, which will be followed by a brief question and answer session.

Tom Fitter

Thank you, Chloe, and good morning, everyone. Welcome to Magnolia Oil & Gas' third quarter earnings conference call. Participating on the call today are Chris Stavros, Magnolia's Chairman, President and Chief Executive Officer, and Brian Corales, Senior Vice President and Chief Financial Officer. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. Additional information on risk factors that could cause results to differ is available in the company's annual report on Form 10-K filed with the SEC. A full Safe Harbor can be found on slide 2 of the conference call slide presentation with the supplemental data on our website.

You can download Magnolia's third quarter 2026 earnings press release as well as the conference call slides from the Investor section of the company's website at www.magnoliaoilgas.com. I will now turn the call over to Mr. Chris Stavros.

Christopher Stavros

Thanks, Tom, and good morning, everyone. Thank you all for joining us today for a discussion of our third quarter 2026 financial and operating results on another very busy day of earnings releases. As you may recall, we provided an update and released preliminary guidance for both the third and fourth quarters in early October, a few weeks after we closed on the acquisition of WildFire. I'll briefly cover our third quarter results, which confirm our ability to consistently execute at a high level.

I'll then highlight a few of the key milestones we have achieved since announcing the WildFire acquisition early last quarter, including some added color around our progress on the integration and synergy capture. Brian will then review our financial results for the third quarter in greater detail and provide some further guidance before we take your questions.

Beginning on slide 3 in our quarterly Investor presentation, while our third quarter results include only a partial 20-day period of WildFire ownership following the September closing, the benefits of the combined asset base are already clear. Our third quarter adjusted net income was approximately $166 million or $0.71 per diluted share, with adjusted EBITDAX of $392 million during the period.

Adjusted net income, which increased by 114% compared to the year-ago quarter, excludes special items consisting primarily of transaction and integration costs related to the WildFire acquisition and net unrealized losses on derivative contracts. Drilling and completion capital for the third quarter was $147 million and below our earlier guidance, with a reinvestment rate of just 38% of our adjusted EBITDAX.

Magnolia generated $224 million of adjusted free cash flow in the third quarter with adjusted operating income or pretax margins of 43% and annualized return on capital employed of approximately 20%. Third quarter total company production volumes grew by 17% year-over-year to 117.3 thousand barrels of oil equivalent per day and in line with our earlier guidance. Oil production grew by 24% and averaged 49.1 thousand barrels per day.

Total Giddings production volumes increased by 23% year-over-year to 97.7 thousand barrels of oil equivalent per day with Giddings oil production climbing 39% to 37.3 thousand barrels per day. Giddings production accounted for approximately 83% of Magnolia's total volumes and will make up a higher proportion of overall company production in the fourth quarter as a result of a full quarter's contribution from WildFire.

Production in our Karnes area was roughly 20,000 barrels of oil equivalent per day during the third quarter, a level which we expect to sustain for an extended period while generating a significant amount of free cash flow. As I've often said, Magnolia's goals and objectives are to be the most efficient operator of our best-in-class oil and gas assets, generate the highest returns on those assets while employing the least amount of capital for drilling and completing our wells.

Overall, our strong momentum has carried into the fourth quarter, the first period with the full contribution of the WildFire assets. Supported by these strong operational and financial results, Magnolia returned approximately $103 million of its free cash flow to shareholders during the quarter through a combination of our base dividend and ongoing share repurchase program, where we bought back 2.3 million shares.

We also reduced our net debt by $100 million to approximately $1.9 billion from the time we closed the WildFire acquisition to the end of the third quarter. Finally, Magnolia's board has increased our share repurchase authorization by an incremental 15 million shares, bringing the remaining authorization to 22.6 million shares, or nearly 8.5% of current shares outstanding. This is indicative of the confidence in Magnolia's value proposition and gives us the flexibility to lean into share repurchases above the 1% per quarter level, either opportunistically or when warranted.

Turning to slide 4, we highlight some key milestones achieved since we announced the WildFire acquisition. First, we divested some non-core assets in the Western Eagle Ford during the third quarter for a sales price of $47.5 million, while also receiving consideration of 616 net acres in our contiguous block of acreage, primarily in Gonzales County and in our Karnes area. This divestiture not only improves the focus of our portfolio, it also increases our working interest in our operated tracts in this acreage block to approximately 98% with an average NRI of 80%.

Second, we've already made strong progress on reducing debt, ending the third quarter with approximately $1.9 billion of debt and achieving our goal of less than 1x net debt to forecasted EBITDAX by the end of 2027, more than a year sooner than originally planned when announcing the WildFire acquisition. At current product prices, we expect to fully repay the outstanding debt on our revolving credit facility into early 2027.

Next, we proactively and opportunistically added some oil hedges using costless collars with floor prices between $70 and $75 to provide greater assurance around our ability to reduce debt should oil prices experience a sharp decline while maintaining exposure to the current higher prices. Finally, we continue to make good progress in capturing synergies from the acquisition, which are proceeding a bit faster than we anticipated, and expect to realize at least 1/3 of the more than $100 million of estimated annual run-rate synergies by year-end 2026.

Looking at slide 5, the integration of WildFire continues to progress very smoothly and we're meeting all our planned milestones. As I mentioned, synergy capture is moving ahead of schedule and we now expect to realize at least 3/4 of the projected annual run-rate synergies by mid-2027. Part of the speed of the integration and synergy capture can be ascribed to the significant overlap of the WildFire acreage to our existing Giddings position, in addition to our strong existing knowledge of field operations and the subsurface.

Nearly all the D&C and subsurface efforts have now been transitioned with the full operations team expected to be in place next month. We are currently running 4 rigs and 2 completion crews and have recently substituted some equipment to capture further operational and capital efficiencies and are in the early stages of implementing Magnolia's playbook of operating practices and procedures.

D&C synergies that have been identified amount to at least $1 million per well and include procurement benefits, faster drilling times, transitioning to multi-well pads, lower cost of sand resulting from our ownership of the sand mine, which cuts our sand costs by roughly 1/3, and completions optimization to name a few. These are incorporated in our current estimated 2027 capital budget of $900 to $950 million.

Over time, we anticipate additional synergies through completion design improvements and the drilling of longer laterals. Recent Austin Chalk well results on WildFire's operated acreage are encouraging and are supportive of our geologic model that led to Magnolia's strong Austin Chalk development plan over the last several years. These results have increased our confidence in the acreage and suggest greater inventory potential than our earlier baseline acquisition analysis.

We plan to continue to delineate the Austin Chalk across our now 1.25 million net acre position in Giddings, and our 2027 company-wide drilling program is expected to allocate approximately 65% of targeted activity to the Austin Chalk and 35% to the Eagle Ford. Development wells on the legacy WildFire acreage are expected to be split about evenly between the Austin Chalk and Eagle Ford.

Finishing up my discussion with slide 6, perhaps most importantly, Magnolia's differentiated and proven business model remains unchanged, but with improved durability. We will continue to limit our D&C spending to 55% of adjusted EBITDAX, supporting annual moderate production growth and consistent free cash flow through the cycle.

With approximately 50% oil production, we expect to generate strong operating margins and significant free cash flow, allowing us to return meaningful capital to shareholders through a growing dividend and ongoing share repurchases of at least 1% per quarter. Magnolia will continue to operate a focused business with the same discipline around allocating capital, controlling our costs, and managing risk that has historically defined our strategy. The significant free cash flow generation should allow us to continue reducing our leverage with a goal of getting our metric of net debt-to-EBITDA below 0.5x.

I'll now turn the call over to Brian for further details on the quarter and for some additional guidance.

Brian Corales

Thanks, Chris, and good morning, everyone. Third quarter was very busy, which included some one-time items associated with the WildFire transaction that closed September 10. I'll review some items from our third quarter results and refer to the presentation slides found on our website. I'll also provide some additional guidance for the fourth quarter of '26, which is unchanged from our press release last month before turning it over for questions.

Beginning on slide 7, Magnolia delivered an excellent quarter, generating adjusted net income of $166 million, or $0.71 per diluted share. Our adjusted EBITDAX for the quarter was $392 million, with total capital associated with drilling, completions, and associated facilities of $147 million, representing just 38% of our adjusted EBITDAX.

Third quarter production volumes grew 17% year-over-year to 117.3 thousand barrels of oil equivalent per day while generating adjusted free cash flow of $224 million. Our third quarter annualized return on capital employed was 20%.

Looking at the quarterly cash flow waterfall chart on slide 8, we started the quarter with $296 million of cash. We issued $1.2 billion of new equity and approximately $900 million of both term debt and borrowings under the credit facility to pay for the $2.6 billion cash portion of the WildFire transaction.

Cash flow from operations before changes in working capital was $323 million, with working capital changes and other small items benefiting cash by $33 million. During the quarter, we paid dividends of $43 million and allocated $60 million to our share repurchases. We incurred $151 million on drilling completions and associated facilities and leasehold and ended the quarter with $17 million of cash.

Looking at slide 9, this chart illustrates the significant amount of share repurchases we have made since beginning the program in the second half of 2019. Since that time, we've repurchased 87.8 million shares. Despite being restricted for a portion of the third quarter, we repurchased 2.3 million shares, leading to diluted weighted average shares outstanding of 230.6 million shares during the third quarter.

As Chris mentioned, our board increased our share repurchase authorization by 15 million shares, and we have 22.6 million shares remaining under our repurchase authorization, which also shows substantial dividend growth in recent years, including increases of 10% in early 2026 and 9% in July alongside our WildFire announcement, bringing the quarterly dividend to $0.18 per share, a cumulative 20% increase in 2026.

Our next quarterly dividend is payable on December 1 and provides an annualized dividend payout rate of $0.72 per share. Our plan for annualized dividend growth is an important part of Magnolia's investment proposition, supportive of our strategy of achieving moderate annual production growth, reducing our outstanding shares, and increasing the dividend payout capacity of the company.

Magnolia ended the quarter with $1.9 billion of net debt and below 1x net debt to 2027 forecasted EBITDAX a year faster than originally planned. We expect to repay our $435 million revolver balance quickly using the business's substantial free cash flow. We now have 3 notes outstanding in the table at the bottom of the slide with the earliest being June 2029 that we acquired from WildFire.

Our outstanding debt and liquidity as of September 30 is shown on slide 11. To ensure quick reduction of debt, we have hedges covering a decreasing portion of our expected oil production over the next year. The hedges consist of some inherited oil swaps from WildFire, and we have opportunistically added some oil collars that ensure the ability to pay off our revolver in the early part of 2027. We do not expect to add any additional hedges.

Turning to slide 12 and looking at our per unit cash costs and operating income margins, total revenue per BOE increased approximately 36% year-over-year, primarily due to the strength in oil prices and also a slightly oilier barrel. Our total adjusted cash operating costs, excluding transaction and integration costs related to WildFire, were $12.40 per BOE in the third quarter of '26. The adjusted operating income margin for the third quarter is $20.70 per BOE, or 43% of our total revenue.

Turning to guidance, fourth quarter D&C capital expenditures for Magnolia is expected to be approximately $235 million. In addition, total production for the fourth quarter is estimated to be 159 to 161 thousand BOE a day with a 49% to 50% oil cut. We disclosed detailed operating expense guidance in the earnings release, which was unchanged from our prior guidance.

For the fourth quarter, we expect oil realizations at a $2 discount to Magellan East Houston benchmark pricing and a fully diluted share count of approximately 266 million shares. We anticipate an effective tax rate of approximately 21% with minimal cash taxes for the fourth quarter and for 2027. Our full year 2027 guidance released in early October remains unchanged.

We expect organic growth of 4% to 5% in both total production and oil production. Our 2027 capital budget is $900 to $950 million, representing less than 55% of our adjusted EBITDAX with 4 drilling rigs and 2 completion crews. We are now ready to take your questions.

Operator

[Operator Instructions] The first question today comes from Neal Dingmann with William Blair. Please go ahead.

質疑応答

Neal Dingmann

Chris, my first question is on the pro forma company. Obviously, to me, the acquisition certainly added notable scale. What do you believe the market's missing with this combination? Because it just seems illogical that your stock price would be lower today than prior to the deal, given everything that it brings.

Christopher Stavros

Good morning, Neil. Thanks. Look, yes, the stock's been weak. We've done something that's obviously relatively large to what we were. I think it was an enormously opportunistic and attractive opportunity for us in terms of larger scale M&A, which personally I'm not a huge fan of, but if you're going to do it, to do it with something that's in your backyard where you've already operated a substantial part of what it was, and have a great understanding of what it's going to be going forward, I think that's sort of the way to do it.

Clearly we had to issue some shares to do it both in the market and to the seller. So there's some seller friction on maybe some anticipated selling that they could do. My job, our job is not to necessarily predict if and when that'll happen. It's to really accommodate it the best way we can, and we will do that. I can assure you that we have. We've done that historically and we have a playbook with a lot of experience around that.

What I'd also remind everyone is that we have no real filed financial statements of what the combined organization looks like. So we put out a press release with financial statements within a 20-day stub period of WildFire and Magnolia together. And so you see a better reflection of that into the fourth quarter and obviously into next year going forward. So I think evidence of that will show what the combined company is truly capable of delivering in terms of operating margins, oil cut, as we bought into oil and just the continued consistent, predictable, reliable sort of execution that I think we're known for.

And so I understand it's illogical. I can't predict these things. I can only try to do the best we can do to manage around it, and we will. And so I think the shares are an opportunity. And we look for opportunities too. So I'll just leave it at that.

Neal Dingmann

I agree. Look forward to the upside. And then my second question, just really on the development plan specifically, you all mentioned that 65% targeted in the Chalk and I think the remainder in the Eagle Ford. Now, how much will quite a bit of that be co-developed? And remind me, just what are the big cost differences between the two?

Christopher Stavros

Yes. We'll do some co-development in 2027 and probably later as we get deeper into the year and further beyond that. Certainly, the mix between—you have to remember that WildFire was not really drilling any Chalk wells. And so all of the Chalk activity that we're going to be executing on is incremental. And so that's why we're introducing this new mix, if you will, on Chalk versus Eagle Ford. That's what you're seeing. You have to keep in mind that all the WildFire wells are about 25% to 30% shallower than what we had been drilling. So the well costs are lower than what Magnolia had been doing standalone.

Neal Dingmann

Very good. Thanks, Chris.

Operator

The next question comes from Peyton Dorn with UBS. Please go ahead.

Peyton Dorne

With the increase in the repurchase authorization, I wondered if we should see this as maybe Magnolia's willingness to participate in an offering if any of those shares issued for WildFire do come to market. And then in a broader sense, if you just touch on your view of the lockup for these shares recently expiring. Thank you.

Christopher Stavros

Yes, as I said earlier, Peyton, I can't predict what they're going to do, when they're going to do it. All I'd say is that the increased authorization really accommodates the larger amount of shares outstanding and providing us with, as I said in my remarks, providing us with some optionality and flexibility to sort of lean in, should we find an opportunity to do so where we could do something that's a little bit blockier or chunkier if it comes up. So happy to do it. We're well equipped to do it, well prepared, and we'll look for those opportunities as they come.

Peyton Dorne

Okay, great. Well, stay tuned. And I guess second question is, you mentioned the synergies accruing a bit faster than expected. I wonder if you could just provide a bit more detail here. Is there one area where you're seeing this kind of faster synergy capture? Is it really from switching out the equipment? Kind of where are you seeing that kind of faster savings?

Christopher Stavros

Yes, certainly. Certainly some of it has been that, on the swapping out of both rigs and frac, the rigs provide us with greater flexibility and speed in terms of drilling. And frac is improving quite a bit to us, the rigs are more capable. But again, it's implementing our playbook to some extent. And yes, it's across the board in terms of what I've seen happen. We've already onboarded quite a bit of staff, quite a bit of folks. We're making a lot of headway, obviously, in terms of not just G&A, but field operations. And more so into next year, certainly Q1, Q2, you'll start to really see it in the well costs and our D&C program.

Peyton Dorne

Okay, great. Helpful detail. Thanks for having me on. Thanks.

Operator

The next question comes from Carlos Escalante with Wolfe Research. Please go ahead.

Carlos Andres E. Escalante

I wanted to ask you, now that you've had presumably some incremental insight into drilling and actually completing some of the Austin Chalk acreage locations on the WildFire asset, when you think about the lower confidence upside in the resource, do you think that's mainly bounded by geography, meaning perhaps less delineated edges of the 1 million-acre footprint? Or is the real risk or is the real bound uphole or downhole, meaning perhaps Eagle Ford and Woodbine under the Chalk, trying to really understand now that you've seen wells under your own operations, where do you see the lower risk to an upside scenario on the inventory side?

Christopher Stavros

Well, we know that the Woodbine, as you mentioned, and other zones exist. We have not experienced that as Magnolia yet. They have. So that's, I think, on the come. And certainly there's going to be a lot of additional appraisal opportunities over the vast amount of acreage. I really, to answer your question, think our confidence has grown around the simple fact that we've done a lot of successful drilling in the southern portion of Giddings and in parts of the northern part of Giddings. And in between, WildFire had what they had, yet had not really drilled much of it. And now we are starting to see that. And now we own all of that in between. And so that is really what has factored into some of the confidence that we have versus the multi-zones that you're referring to right now. But we'll get to that down the road.

Carlos Andres E. Escalante

Sure, that's actually a good segue to my follow-up question. Because presumably again, out of the locations that you intend to target on the WildFire side of the acreage that you would be working towards delineation of new inventory as you're highlighting, but at the same time, wonder where the idea of drilling for best returns fits within that context and framework. And then obviously leading into 2027, how much of that preliminary budget is dedicated to strictly appraisal activity on that side of the fence?

Christopher Stavros

Yes, I would call it more delineation as opposed to appraisal. I mean, we're going to be delineating quite a lot of the WildFire acreage as part of the program. Not all that different than what I conveyed. The Eagle Ford portion of the WildFire acreage is very well delineated. I think there's some things that we can do on the optimization side over time that will improve our results and well performance, but more so on the delineation that is really in the Chalk area where WildFire drilled very few wells. We're just getting at it. We've drilled a handful of wells. That will accelerate as we exit the year and into 2027. The appraisal will be sort of a later stage activity for us, frankly.

Carlos Andres E. Escalante

Fair enough. Thank you, Chris.

Operator

The next question comes from Phillip Jungwirth with BMO. Please go ahead.

Phillip Jungwirth

You're one of the few E&Ps that has a preliminary budget for next year at $900 to $950 million. I was just hoping you could talk about underlying inflation assumptions and also just what are some of the ways that you might be looking to mitigate diesel pressures, and is there much real benefit at this point to using more dual-fuel or e-fleets given prices have already run, or are providers kind of trying to price out that fuel arbitrage?

Christopher Stavros

Yes, I mean, we did about the best we could do at this stage in terms of incorporating probably mid-single-digit inflation expectations coming out of this year and into 2027, broadly for oilfield service costs. So that's what I'm guessing right now. And that's at current oil and gas prices. It includes rigs, frac, OCTG, obviously partly resulting from import pricing pressures due to the tariffs on steel, et cetera. We're well prepared, I would say, to tackle some of these challenges. Our supply chain team has done a terrific job of getting ahead of it and taking steps to mitigate some of the impact of the inflation that we're seeing.

Some of that, as I mentioned, is related to substituting some of the equipment, the rigs and frac. Certainly the sand costs, as I said, will help. We do have a dual-fuel frac that is helping us on some diesel substitution quite a bit. We've done some things on a field gas trial which could lead to further savings in fuel on the frac. There's other things that we're doing here and there as well and will help us with time just in dealing with the bigger equipment in terms of performance expectations and pricing over time.

Phillip Jungwirth

Okay, great. And then just coming back to the increased optimism around the Chalk on WildFire acreage, I was wondering, does this have anything to do with any wells recently drilled and completed? Because I know they had targeted the Chalk across some of their position. Anything to note on the 3D seismic survey that you purchased, and as you do progress to a more active Chalk position across WildFire, are you looking to do anything differently on just how wells are drilled, designed, and completed versus what they had done in the past?

Christopher Stavros

Yes, I mean, the seismic, we just purchased the seismic. So we've got to download the data and really analyze the data. So that's really later into 2027, but I fully anticipate that that could alleviate some potential operational issues on the drilling site for sure over time. That was always helpful just in terms of previous seismic that we had acquired and had over our experiences through Giddings, so I know the seismic will be useful to us.

But I really do believe that operationally, as we've inserted our playbook on our operating procedures, that things will have a better outcome around optimization efforts, both in the Chalk and the Eagle Ford over time. Again, they really didn't do much on the Chalk and, back to your initial part of your question, we've drilled a handful of wells that we've seen some early good performance out of those wells, which is, as we said in the press release and our comments, just very encouraging and really gives us a nice little runway, early good start to the program heading into next year.

Phillip Jungwirth

All right, thank you.

Operator

Again, if you have a question, please press star then 1. The next question comes from Jerry Spiker with Goldman Sachs. Please go ahead.

Unknown Speaker

Thinking about the recent asset sale of the non-core assets, is there any color on that sale and then are there any additional assets you expect within the combined portfolio that could be exchanged or sold off?

Christopher Stavros

So that was really just a pivot away from something that we were experimenting on, frankly, and it was a bit of a stranded opportunity to the extent that we would have had to pursue additional leasing to make it bigger. And having just gone through a sizable acquisition, just felt that we should refocus our efforts on something more core in Giddings, and that's what we did. That's about all I'll say. It was a relatively small sale for us, and it minimizes our distraction going forward and refocuses our efforts on Giddings and the acquisition that we just did with WildFire.

Unknown Speaker

Great. And then on the $900 to $950 million of D&C capital to deliver 4% to 5% production growth in 2027, how much of that represents maintenance capital versus incremental growth capital? Thank you.

Christopher Stavros

Maintenance capital is probably, plus or minus, $800 million or so.

Unknown Speaker

Great. Thank you.

Operator

The next question comes from Noah Hungness with Wells Fargo. Please go ahead.

Unknown Speaker

Just 1 question for me is on the Eagle Ford split that you guys gave, the 35%. Could you maybe just talk about how those wells are split across the Karnes area, the legacy Magnolia position, and the WildFire position?

Christopher Stavros

Yes, I mean, it's a combination of their WildFire Eagle Ford position and what we had been doing. So if you wanted to think about it, I would probably tell you it'd be a fraction of 1 rig in the Karnes area, and then call it a 1/2 to 2/3 of a full rig in the Eagle Ford area in the Giddings field, and then 2-plus rigs really throughout Giddings, some from the Chalk. Call it roughly 10% to 15% in the Eagle Ford in the Karnes area.

Unknown Speaker

Great. Thanks, Chris.

Operator

This concludes our question and answer session and the conference. Thank you for attending today's presentation. You may now disconnect.

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