Matador Resources Company — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited results; comparisons are with the corresponding 2021 periods unless stated otherwise. Matador is an independent oil and gas producer, principally operating in the Delaware Basin, with additional Eagle Ford, Haynesville and midstream operations.
Financial results and operating metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenues | $943.9 million | $357.4 million | $1,509.6 million | $624.3 million |
| Operating income | $595.0 million | $145.1 million | $904.3 million | $237.8 million |
| Net income attributable to Matador shareholders | $415.7 million | $105.9 million | $622.8 million | $166.6 million |
| Diluted earnings per share | $3.47 | $0.89 | $5.20 | $1.40 |
| Adjusted EBITDA attributable to Matador shareholders (non-GAAP) | $663.8 million | $261.0 million | $1,125.6 million | $459.1 million |
| Net cash provided by operating activities | $646.3 million | $258.2 million | $975.3 million | $427.6 million |
- Q2 average production was 110,750 BOE per day, up 19% year over year: oil production rose 21% to 64,300 Bbl per day and natural gas production rose 16% to 278.5 MMcf per day.
- Q2 realized prices before derivative settlements were $111.06 per barrel of oil and $9.57 per Mcf of natural gas, compared with $64.90 and $4.46, respectively, in Q2 2021. Including realized derivative losses, prices were $105.21 per barrel and $8.51 per Mcf.
- For the six months, investing cash use was $521.0 million and financing cash use was $258.9 million. Cash and restricted cash increased $195.4 million to $282.3 million.
- At June 30, cash was $230.4 million and restricted cash was $51.9 million. Current assets were $800.9 million and current liabilities were $609.1 million.
- Debt included $906.0 million principal amount of senior notes due 2026 and $420.0 million of San Mateo facility borrowings. Matador had no borrowings under its revolving credit agreement; it had $45.6 million of letters of credit outstanding. The notes’ balance-sheet carrying value was $900.3 million.
Changes versus the prior comparable periods
- Revenue, operating income and shareholder net income rose sharply, primarily reflecting higher realized oil and gas prices and increased production. Q2 oil and gas revenue increased 117%; six-month oil and gas revenue increased 109%.
- Q2 oil-equivalent production increased 19%, while six-month production increased 22%. Q2 oil and gas prices before realized hedging losses rose 71% and 115%, respectively.
- Operating costs also increased. Q2 production taxes, transportation and processing rose to $85.7 million from $43.8 million; lease operating expense rose to $39.9 million from $28.8 million. Management cited higher revenue, more wells and service-cost inflation.
- The income tax provision increased to $136.0 million in Q2 and $204.5 million for the first half, versus $5.3 million and $8.2 million, respectively, in 2021. The 2022 effective rate was 25%; the prior-year federal valuation allowance contributed to the lower comparative tax provision.
- Operating cash flow more than doubled for the first half. Capital spending and acquisitions drove investing cash use higher; financing included $142.4 million of note repurchases and net repayment of $100.0 million under Matador’s credit agreement.
Outlook, management commentary and risks
- As of July 26, Matador raised its 2022 drilling, completion and equipping capital budget to $765–$835 million from $640–$710 million, mainly for a seventh Delaware Basin rig and an accelerated drilling program. Midstream capital spending remained estimated at $50–$60 million. Management planned to begin operating the seventh rig in September and continue with seven rigs for the rest of 2022.
- Management said commodity prices and the industry outlook remained uncertain and prices could decline. Results and liquidity are sensitive to commodity prices, differentials, hedging, production, operating costs, access to capital and regulatory developments.
- Hedges reduced exposure but also constrained realized prices during the period. Q2 realized derivative losses were $61.2 million; the open derivative position was a $59.5 million net liability at June 30. The filing reports contracts covering about 5.4 million barrels of oil and 31.2 Bcf of gas for Q3–Q4 2022, plus 2.4 Bcf of gas for Q1 2023.
- Management cited oilfield-service inflation, budgeting a 20% increase in service costs versus Q4 2021, and warned further cost inflation or supply-chain disruption could increase spending or delay operations. The company said it could adjust or defer capital spending if prices or costs warranted.
- Material contractual commitments included an estimated $563.3 million of potential deficiencies under non-affiliate gathering, transportation, processing and disposal agreements if operations ceased in covered areas, and $315.5 million of remaining minimum obligations under San Mateo agreements. These are contractual commitments, not amounts stated as currently payable in full.
- Other disclosed risks include pipeline takeaway and fractionation constraints, volatile Waha gas differentials, produced-water disposal and induced seismicity rules, environmental regulation, and dependence on drilling results and access to capital. Management considered ordinary-course legal proceedings unlikely to materially harm financial condition, results or cash flows.
- Matador acquired Pronto Midstream on June 30 for approximately $77.8 million, adding a processing plant, compressor stations and gathering pipelines. It also repurchased $144.0 million principal amount of notes for $142.4 million during Q2, and a further $14.2 million principal amount after quarter-end through July 25. The quarterly dividend was increased to $0.10 per share; a July declaration scheduled payment for September 1.
Important facts for investors to verify
- How much of the earnings and cash-flow improvement is sustainable if oil and gas prices retreat, considering production growth, derivative settlements and higher costs.
- Updated capital-spending plans, execution of the seventh-rig program, service-cost inflation and resulting free cash flow and borrowing needs.
- Hedge volumes, floors and ceilings, derivative liabilities, and exposure to regional gas and oil differentials and pipeline capacity.
- Debt reduction and liquidity, including the separate, non-recourse San Mateo facility, its December 2023 maturity, covenant compliance and cash-distribution restrictions.
- Minimum-volume commitments and potential deficiency fees, particularly the stated $563.3 million non-affiliate exposure and $315.5 million San Mateo commitment.
- Integration and final purchase-price allocation for Pronto, as well as contingent consideration from the 2021 property acquisition; the latter had a $13.3 million estimated fair value at June 30.
- Dividend affordability, given that the quarterly rate doubled to $0.10 per share after Q2, and the company’s ability to fund planned capital spending while maintaining liquidity.