Matador Resources Company — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Matador is an independent oil and gas producer with midstream operations, primarily in the Delaware Basin.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $560.3 million | $565.7 million | Down 1% |
| Oil and gas revenue | $502.9 million | $626.5 million | Down 20% |
| Operating income | $251.4 million | $309.3 million | Down 19% |
| Net income attributable to Matador shareholders | $163.1 million | $207.1 million | Down 21% |
| Diluted earnings per share | $1.36 | $1.73 | Down 21% |
| Adjusted EBITDA attributable to Matador shareholders (non-GAAP) | $365.2 million | $461.8 million | Down 21% |
| Net cash from operating activities | $339.5 million | $329.0 million | Up 3% |
| Net cash used in investing activities | $343.5 million | $251.9 million | Use increased |
Operating margin was approximately 44.9%, compared with 54.7% a year earlier. Total revenue was nearly flat partly because derivative losses were substantially smaller, offsetting lower oil and gas revenue. The company attributed lower earnings and Adjusted EBITDA mainly to lower realized commodity prices, partly offset by higher production.
Production was 9.6 million BOE, averaging 106,654 BOE per day, up 14% year over year. Oil averaged 58,941 barrels per day (up 10%); natural gas averaged 286.3 MMcf per day (up 18%). Realized oil price was $75.74 per barrel versus $95.45; realized natural gas price was $3.93 per Mcf versus $7.63. DD&A rose to $126.3 million from $95.9 million, and lease operating expense rose to $44.4 million from $34.0 million; DD&A per BOE increased to $13.16 from $11.33.
Liquidity, debt and capital
At March 31, cash was $448.7 million and restricted cash was $54.7 million. Current assets of $1.006 billion exceeded current liabilities of $601.4 million by about $405.1 million. Matador had no borrowings on its revolving Credit Agreement at quarter-end; it had $699.2 million principal outstanding on its 5.875% 2026 notes. San Mateo had $475.0 million outstanding on its separate, non-recourse-to-Matador facility. The company reported compliance with both credit facilities’ covenants.
Operating cash flow was slightly below investing cash outflow. Investing included $224.1 million of drilling, completion and equipping expenditures, $103.9 million for oil and gas property acquisitions (including an $80 million Advance acquisition deposit), and $14.1 million of midstream capital expenditures. Cash and restricted cash declined $43.9 million during the quarter. Matador paid a $0.15-per-share dividend; the board declared another $0.15 quarterly dividend in April.
Material changes and subsequent events
On April 12, 2023, Matador completed its acquisition of Advance Energy Partners for approximately $1.60 billion in cash, subject to customary adjustments, plus potential additional cash consideration of $7.5 million for each 2023 month in which the contract-defined average oil price exceeds $85 per barrel. The purchase was funded with cash and revolver borrowings. On April 11, Matador issued $500 million of 6.875% notes due 2028, receiving approximately $487.6 million net proceeds. Together with operating cash flows, proceeds were used to repay $525 million on the revolver. As of April 25, revolver borrowings were $625 million; San Mateo borrowings were $455 million.
Outlook, risks and contingencies
- 2023 capital expenditure estimates are $1.18–$1.32 billion for drilling, completion and equipping, including expected spending on Advance acreage, and $150–$200 million for midstream. Management expects Delaware Basin development to remain the primary operational and capital focus; it was operating eight contracted Delaware Basin rigs as of April 25.
- Management says capital spending can be adjusted for market conditions, costs, drilling results and access to capital. No specific production or earnings guidance is provided in the supplied filing text.
- Commodity price volatility, natural gas takeaway constraints and differentials, service-cost inflation, supply-chain disruption, and the availability of capital may affect results. Matador had natural gas basis swaps covering approximately 13.75 Bcf of anticipated production for the remainder of 2023 as of April 25; it had no open oil-price derivatives at March 31.
- Minimum-volume agreements could require substantial deficiency payments: approximately $524.1 million under non-affiliate commitments and $277.7 million under San Mateo agreements if applicable obligations were not met. These are contractual exposure amounts, not stated current payments due.
- The acquired Advance salt-water disposal well is subject to enhanced reporting and injection curtailment tied to seismic events. An EPA/NMED consent decree, subject to court entry after public comment, requires at least $1.25 million for a supplemental environmental project, at least $0.5 million for monitoring improvements, and a $1.15 million civil penalty.
- Management considered ordinary-course legal proceedings unlikely to materially adversely affect the company. Actual outcomes remain uncertain; the filing highlights regulatory, induced-seismicity, commodity-price, acquisition-integration and operating risks.
Important facts for investors to verify
- Final Advance purchase-price adjustments and any oil-price-triggered additional consideration, together with the acquisition’s effects on production, capital needs and debt.
- Post-acquisition leverage, revolver availability and covenant headroom, including the separation between Matador and San Mateo debt and liquidity.
- Whether production growth and planned spending can offset lower realized prices, rising DD&A and operating-cost inflation; monitor gas differentials and hedging coverage.
- Performance against 2023 capital expenditure estimates and the scale and terms of minimum-volume commitments and other midstream obligations.
- Status of the consent decree and operating restrictions or costs associated with induced-seismicity rules, including the Advance disposal well.