Matador Resources Company — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Matador is an independent oil and gas producer, primarily active in the Delaware Basin, with additional operations in the Eagle Ford and Haynesville/Cotton Valley and a midstream business.
Financial and operating results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $840.9 million | $472.4 million | $2.351 billion | $1.097 billion |
| Operating income | $483.3 million | $230.2 million | $1.388 billion | $468.0 million |
| Net income attributable to Matador shareholders | $337.6 million | $203.6 million | $960.4 million | $370.2 million |
| Diluted EPS | $2.82 | $1.71 | $8.01 | $3.12 |
| Adjusted EBITDA attributable to Matador shareholders (non-GAAP) | $539.7 million | $293.8 million | $1.665 billion | $752.9 million |
Q3 operating margin was approximately 57.5% and net margin attributable to Matador shareholders approximately 40.1%, versus 48.7% and 43.1%, respectively, a year earlier. Higher operating profitability was partly offset at the net-income level by a $113.9 million tax provision; Q3 2021 included a $6.7 million tax benefit.
- Production: Q3 production averaged 105,214 BOE/day, up 17% year over year, including 60,200 barrels of oil/day (+19%) and 270.3 MMcf of natural gas/day (+15%). Nine-month average production was 103,352 BOE/day, up from 85,801.
- Prices: Q3 realized prices before derivatives were $94.36/Bbl for oil and $9.22/Mcf for natural gas, versus $69.73 and $6.27. Including realized derivative losses, prices were $91.69/Bbl and $7.55/Mcf.
- Cash flow and investment: Nine-month operating cash flow was $1.532 billion, compared with $718.8 million. Investing cash outflow was $761.1 million, including drilling and completion spending, property acquisitions and the Pronto midstream acquisition. Financing cash outflow was $416.3 million. Cash and restricted cash increased $354.8 million to $441.7 million.
- Liquidity and debt: At quarter-end, cash was $400.5 million, restricted cash $41.2 million, current assets $926.9 million and current liabilities $625.2 million. Matador had no borrowings under its revolving credit facility and $45.6 million of letters of credit. Outstanding senior-note principal was $757.4 million; San Mateo had $440.0 million outstanding under its separate facility. The facilities’ borrowings and letters of credit are not all obligations of Matador on the same basis: San Mateo’s facility is non-recourse to Matador and its wholly owned subsidiaries.
Material changes and notable items
- Q3 oil and gas revenue rose 63% year over year, reflecting both higher realized prices and increased production. Nine-month oil and gas revenue rose 91%.
- Matador repurchased $292.6 million principal amount of its 2026 notes during the first nine months for $287.4 million; it reported $757.4 million of note principal remaining at September 30. It repurchased a further $7.4 million after quarter-end through October 25.
- Matador acquired Pronto midstream assets on June 30 for approximately $77.8 million, including a processing plant, compressor stations and gathering pipelines. The filing says the acquisition’s pro forma effect on 2022 revenue and net income would not be material.
- Q3 realized derivative losses were $56.3 million, partly offset by a $43.1 million unrealized gain. For the first nine months, realized derivative losses were $139.9 million and the unrealized loss was $1.5 million.
- The nine-month income tax provision was $318.4 million, primarily deferred tax expense; the company reported a 25% effective tax rate. It said it expected to begin paying federal and New Mexico income taxes in 2022 as net operating loss carryforwards were expected to be exhausted.
- No oil and gas property ceiling-test impairment was recorded for the quarter or nine-month period.
Outlook, risks and contingencies
- As of October 25, 2022, management expected to operate seven Delaware Basin drilling rigs through year-end. Its 2022 drilling, completion and equipping budget remained $765–$835 million; anticipated midstream capital spending was $50–$60 million, excluding the Pronto acquisition. Management said spending could be adjusted, deferred or redirected as conditions warrant.
- The Board increased the quarterly dividend to $0.10 per share in June 2022. A further $0.10 dividend was declared in October, payable December 1, 2022.
- Management described the commodity-price outlook as uncertain. It cited volatility in oil and gas prices, widening Delaware Basin/Waha gas basis differentials (about negative $2.40/MMBtu on October 25), possible takeaway or fractionation constraints, service-cost inflation and supply-chain disruptions. It reported no material pipeline-related production interruptions as of that date.
- Open hedges at September 30 included Q4 2022 collars covering 2.7 million barrels of oil and 13.2 million MMBtu of natural gas, plus Q1 2023 natural gas collars covering 2.4 million MMBtu. Hedging limits upside when market prices exceed collar ceilings and does not eliminate price or basis risk.
- Contractual commitments included approximately $557.8 million under certain non-affiliate transportation, gathering, processing and disposal agreements and $301.7 million under San Mateo agreements. These are long-term commitments; the non-affiliate amount represents potential deficiency fees if operations ceased in covered areas, not a stated expected payment.
- Other risks discussed include operating-cost inflation, capital access, regulatory and environmental requirements, induced seismicity and potential restrictions affecting federal-land operations. Management said ordinary-course legal proceedings were not expected to have a material adverse impact.
Important facts for investors to verify
- Whether production growth and realized prices can be sustained, particularly if commodity prices or natural gas basis differentials weaken.
- Actual remaining 2022 capital spending, production performance and cash generation compared with management’s budget and seven-rig plan.
- Debt repayment progress and San Mateo’s facility maturity: its $440 million facility was due December 19, 2023, and management said San Mateo planned to extend the maturity.
- The effect of hedges, operating-cost inflation, takeaway capacity and minimum-volume commitments on realized margins and liquidity.
- How much of reported earnings and cash generation is recurring versus affected by commodity prices, derivative accounting, taxes, acquisitions and non-GAAP adjustments.