Business Context and Reporting Period
Matador Resources Co. filed a Form 8-K on September 3, 2013, announcing the commencement of an underwritten public offering of 8,500,000 shares of common stock, with an option for underwriters to purchase up to 1,275,000 additional shares. The filing provides operational and financial updates as of September 1, 2013, covering operations in the Eagle Ford (South Texas), Permian Basin (Southeast New Mexico/West Texas), Haynesville/Cotton Valley (Northwest Louisiana/East Texas), and Southwest Wyoming/Utah/Idaho.
Key Financial and Operational Metrics
- Production: Average daily production for June and July 2013 was 12,689 BOE/d, comprising 6,200 Bbl/d of oil and 38.9 MMcf/d of natural gas.
- Capital Expenditures: The 2013 capital budget was increased to approximately $370.0 million. Approximately $168.6 million (46%) was incurred in the first six months of 2013.
- Liquidity and Debt: As of August 31, 2013, the borrowing base under the revolving credit facility was $350.0 million, with $275.0 million in borrowings outstanding (excluding letters of credit).
- Reserves and Acreage: Total net acreage was 121,427 acres. Total estimated net proved reserves were 38,931 MBOE with a PV-10 value of $522.3 million.
- Hedging: As of August 26, 2013, hedges included approximately 0.8 million Bbl of oil for the remainder of 2013 and 2.3 million Bbl for 2014.
Material Changes and Operational Updates
- Production Growth: Oil production increased to 6,200 Bbl/d in June/July 2013 from 4,825 Bbl/d in the first five months of 2013. Natural gas production rose to 38.9 MMcf/d from 33.8 MMcf/d.
- Acreage Acquisitions: Between January 1 and September 1, 2013, the company acquired approximately 35,000 gross (26,800 net) acres in the Permian Basin.
- Drilling Activity: The company added a third drilling rig in mid-August 2013. Plans include operating two rigs in the Eagle Ford and one rig continuously in the Permian Basin through 2014.
- Cost Efficiency: Average drilling and completion costs per gross well in the Eagle Ford decreased significantly between early 2011 and September 2013 (e.g., western Eagle Ford dropped from ~$9.9 million to ~$6.3 million). Drilling days were also reduced.
Guidance, Outlook, and Risks
- Capital Allocation: Approximately 78% of the increased 2013 budget is directed to South Texas oil production, with 20% allocated to the Permian Basin. The company plans to allocate 98% of its 2013 and preliminary 2014 budgets to oil and liquids-rich opportunities.
- 2014 Outlook: The preliminary 2014 capital expenditure budget is estimated between $425 million and $450 million, including ~$400 million for drilling and completions.
- Funding Strategy: Remaining 2013 and 2014 capital needs are expected to be funded by net proceeds from the current stock offering, cash flows, and potential borrowings under the credit facility.
- Risks: Forward-looking statements are subject to risks including commodity price volatility, execution of the drilling program, reserve replacement, and availability of capital. The filing notes that actual results may differ materially from projections.
Investor Verification Checklist
- Verify the final closing price and total net proceeds from the 8,500,000 share offering and any exercise of the 1,275,000 share option.
- Confirm the actual utilization of the $370 million 2013 capital budget versus the $168.6 million already spent.
- Monitor the performance of the 40-acre and 50-acre downspacing test wells in the Eagle Ford to validate reserve growth assumptions.
- Track the status of the borrowing base increase under the revolving credit facility to ensure sufficient liquidity for the 2014 budget.
- Review subsequent filings for updates on the Wolfcamp and Bone Spring test well results in the Permian Basin.