Matador Resources Company — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited results. Matador is an independent U.S. oil and gas producer, primarily operating in the Delaware Basin, with additional midstream operations through San Mateo.
Financial and operating performance
- Q3 revenue: $472.4 million, versus $203.4 million in Q3 2020. Oil and gas revenue was $461.5 million; reported total revenue includes a $57.4 million realized derivative loss and a $9.0 million unrealized derivative gain.
- Q3 earnings: Net income attributable to Matador shareholders was $203.6 million, or $1.71 per diluted share, compared with a $276.1 million loss, or $2.38 loss per diluted share, a year earlier. Q3 Adjusted EBITDA attributable to Matador shareholders, a non-GAAP measure, was $293.8 million versus $121.0 million.
- Nine-month results: Revenue was $1.097 billion; net income attributable to shareholders was $370.2 million, or $3.12 per diluted share, versus a $503.8 million loss in 2020. Nine-month Adjusted EBITDA was $752.9 million versus $369.2 million.
- Production: Q3 production averaged 90,033 BOE per day, up from 72,989 a year earlier; oil averaged 50,700 barrels per day and natural gas 235.7 MMcf per day. Q3 realized prices before derivative settlements were $69.73 per barrel of oil and $6.27 per Mcf of natural gas.
- Cash flow and investment: Nine-month operating cash flow was $718.8 million, versus $320.0 million. Investing cash outflow was $383.7 million, versus $661.2 million; financing cash outflow was $318.7 million, mainly reflecting $320.0 million of net repayments under Matador’s Credit Agreement and dividends. Cash and restricted cash totaled $107.8 million at quarter-end.
- Balance sheet and debt: Total assets were $4.0 billion and shareholders’ equity was $1.9 billion. At September 30, Matador had $120.0 million drawn on its revolving facility, $1.05 billion of senior notes, and a $7.5 million SBA loan; San Mateo had $357.5 million drawn on its separate facility. The notes carry a 5.875% coupon and mature in 2026. Matador and San Mateo reported compliance with their respective debt covenants.
Changes versus the prior comparable period
- Higher commodity prices and production materially increased oil and gas revenue and earnings. Q3 oil production rose 20% and natural gas production 28% year over year.
- The comparisons also reflect the absence of 2020 full-cost ceiling impairment charges: $251.2 million in Q3 2020 and $575.2 million for the first nine months of 2020; none was recorded in 2021.
- Higher prices contributed to realized derivative losses: $57.4 million in Q3 and $125.9 million for the nine months of 2021. The nine-month unrealized derivative loss was $77.2 million.
- Nine-month capital spending was lower than in 2020, particularly for midstream projects, while Matador reduced borrowings under its revolver. General and administrative expense increased, in part due to higher compensation and stock-based compensation.
Outlook, risks and contingencies
- On October 26, 2021, Matador narrowed its 2021 drilling, completion and equipping capital expenditure estimate to $535–$565 million, from $525–$575 million; expected midstream capital expenditures remained $35–$45 million. Management planned to advance certain completions and operate a fifth rig without raising the midpoint of the drilling and completion budget.
- The board increased the quarterly dividend from $0.025 to $0.05 per share in October 2021; the declared payment was due December 1, 2021.
- Management said commodity-price outlook remained uncertain and noted that higher prices could bring further oilfield-service cost inflation. Hedging can limit upside: open derivatives had a net fair-value liability of $113.1 million at September 30, and management expected continued derivative losses if prices stayed near then-current levels.
- Risks include commodity-price and basis volatility, production and drilling results, access to capital, service-cost inflation, takeaway or processing constraints, and regulatory changes. Matador cited New Mexico flaring and gas-capture rules and possible federal restrictions affecting public-land development.
- Minimum-volume and related contractual obligations are significant: approximately $613.7 million under non-affiliate transportation, gathering, processing and disposal agreements and $399.9 million under San Mateo agreements. If operations ceased in covered areas, estimated deficiencies under certain agreements would be approximately $583.0 million. A separate 10-year transportation agreement could create a minimum obligation of about $30.7 million if the pipeline enters service.
- Management described ordinary-course legal proceedings as unlikely to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether commodity prices, production volumes and service costs support the 2021 capital-spending plan and subsequent cash generation.
- The effect of realized hedge losses and the remaining hedge schedule on realized prices and cash flow.
- Matador’s and San Mateo’s debt, covenant headroom, and the restrictions on access to San Mateo cash and distributions.
- The enforceability, timing and potential cash impact of minimum-volume, deficiency-fee and transportation commitments.
- Whether the increased dividend is sustainable through commodity-price volatility and planned investment needs.