Matador Resources Company — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Matador is an independent oil and gas producer focused primarily on the Delaware Basin, with additional operations in the Eagle Ford, Haynesville and Cotton Valley plays, plus midstream operations through San Mateo.
Financial and operating performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Oil and gas revenue | $118.8 million | $211.1 million | $316.7 million | $404.3 million |
| Total reported revenue | $62.9 million | $241.7 million | $434.5 million | $415.6 million |
| Net income (loss) attributable to Matador shareholders | $(353.4) million | $36.8 million | $(227.7) million | $19.8 million |
| Diluted earnings (loss) per share | $(3.04) | $0.31 | $(1.96) | $0.17 |
| Adjusted EBITDA attributable to Matador shareholders | $107.6 million | $144.1 million | $248.2 million | $268.9 million |
- Q2 production averaged 73,302 BOE per day, up 20% year over year; oil was 43,100 Bbl per day and natural gas was 181.4 MMcf per day. H1 average production was 72,232 BOE per day, up 19%.
- Q2 realized oil price was $24.03/Bbl before derivative gains and $35.28/Bbl including realized gains; natural gas realized price was $1.49/Mcf. H1 realized oil price was $34.63/Bbl before hedges and $41.85/Bbl including realized gains.
- Q2 total reported revenue was pulled down by a $132.7 million unrealized derivative loss, despite $44.1 million in realized derivative gains. H1 included $55.0 million in realized derivative gains and a $3.8 million unrealized gain.
- Operating loss was $435.3 million in Q2 and $241.8 million for H1. The principal unusual charge was a $324.0 million full-cost ceiling impairment; DD&A was $93.4 million in Q2 and $184.1 million for H1.
- Operating cash flow was $210.4 million for H1, versus $194.5 million a year earlier. Investing cash use was $458.8 million, including $335.1 million for oil and gas properties and $123.3 million for midstream. Financing provided $226.8 million. Cash and restricted cash declined $21.6 million to $43.5 million.
- At June 30, cash was $20.6 million and restricted cash was $22.9 million. Total assets were $4.00 billion; shareholders’ equity was $1.82 billion.
Debt, liquidity and material changes
- At June 30, debt included $1.05 billion of 5.875% senior notes due 2026, $385.0 million drawn on Matador’s revolving credit facility, $320.0 million drawn on San Mateo’s facility, and a $7.5 million SBA loan. The senior notes’ reported carrying value was $1.040 billion.
- Matador’s revolver had a $900 million borrowing base and $700 million elected commitment; approximately $45.1 million of letters of credit were outstanding. San Mateo had $375 million of lender commitments, $320 million drawn and approximately $9.0 million of letters of credit. Matador reported covenant compliance at quarter-end; availability remains subject to facility terms and covenants.
- Compared with December 31, 2019, Matador revolver borrowings rose from $255 million to $385 million and San Mateo borrowings rose from $288 million to $320 million. Current assets were $227.3 million versus current liabilities of $344.8 million.
- Oil and gas revenue fell 44% in Q2 year over year as the oil price decline outweighed higher production. Adjusted EBITDA fell 25% in Q2 and 8% for H1 year over year. G&A fell 26% in Q2, reflecting cost reductions.
Outlook, risks and contingencies
- In response to COVID-19-related demand disruption and oil-price volatility, Matador reduced its Delaware Basin drilling program from six rigs to three by late Q2 and expected to maintain three rigs for the rest of 2020, with further reductions possible.
- On April 29, the company lowered its 2020 drilling, completion and equipping capital expenditure outlook from $690–$750 million to $440–$500 million. Midstream capital expenditure guidance remained $85–$105 million, representing Matador’s proportionate share.
- Management said the industry outlook for the rest of 2020 remained highly uncertain and expected oil prices to remain below 2019 levels. It warned that persistently low prices could prompt another ceiling impairment. The filing estimates that specified lower trailing-12-month prices could have produced approximately $300 million of additional impairment, all else equal.
- Hedges provide partial price protection but do not eliminate commodity and basis risk. The company disclosed no hedges against Waha natural gas price differentials for 2020. Production curtailments and possible storage constraints could also affect volumes and realized prices.
- At June 30, contractual cash obligations totaled approximately $3.10 billion, including debt principal and long-term transportation, gathering, processing and disposal commitments. Some agreements have minimum-volume obligations; hypothetical deficiency fees if operations ceased in covered areas were estimated at $387.9 million. Management considered ordinary-course legal proceedings unlikely to have a material adverse impact.
- The $7.5 million SBA Paycheck Protection Program loan bears 1% interest and may be eligible for forgiveness subject to program requirements. Management said proceeds were used for permitted payroll and related costs.
Important facts for investors to verify
- How subsequent commodity prices and reserve revisions affect the next quarterly full-cost ceiling test and impairment charge.
- Actual revolver availability, covenant headroom and the effect of any borrowing-base redetermination; confirm treatment of San Mateo’s non-recourse debt.
- Whether the reduced 2020 capital plan and three-rig program can be funded by operating cash flow, hedges and available borrowing capacity.
- Hedge volumes, terms and mark-to-market changes, and exposure to regional oil and natural gas basis differentials.
- Progress and costs for the Black River Processing Plant expansion, and the company’s ability to meet minimum-volume commitments and avoid deficiency fees.