Matador Resources Company — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Matador is an independent oil and gas producer focused primarily on the Delaware Basin, with additional Eagle Ford and Haynesville/Cotton Valley operations and a midstream business conducted largely through San Mateo Midstream.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Oil and natural gas revenue | $316.2 million | $197.9 million | Up 60% |
| Total reported revenue, including derivatives | $266.8 million | $371.6 million | Down 28% |
| Operating income | $92.7 million | $193.5 million | Down 52% |
| Net income attributable to Matador shareholders | $60.6 million | $125.7 million | Down 52% |
| Diluted earnings per share | $0.51 | $1.08 | Down 53% |
| Adjusted EBITDA attributable to Matador shareholders | $198.1 million | $140.6 million | Up 41% |
| Cash provided by operating activities | $169.4 million | $109.4 million | Up $60.0 million |
| Cash used in investing activities | $108.9 million | $248.2 million | Use decreased $139.3 million |
| Cash used in financing activities | $103.6 million | Cash provided of $130.5 million | Shift primarily reflects debt repayment |
| Oil equivalent production | 6.66 million BOE; 73,983 BOE/day | 6.48 million BOE; 71,161 BOE/day | Daily production up 4% |
Oil revenue increased 26%, reflecting a 24% rise in realized oil prices to $57.05 per barrel. Natural gas revenue rose to $103.0 million from $28.3 million, mainly as realized prices increased to $5.88 per Mcf from $1.70, with production also up 5%. Average daily oil production increased 2% and natural gas production increased 6%. Delaware Basin production averaged 68,000 BOE/day, up 13% year over year.
Derivative results drove the contrast between reported revenue and underlying operating performance: Q1 2021 included realized and unrealized derivative losses of $25.9 million and $43.4 million, respectively; Q1 2020 included gains of $10.9 million and $136.4 million. The company reported a 4% effective income tax rate, versus 24% a year earlier. Operating margin on reported revenue was approximately 34.7% in Q1 2021 versus 52.1% in Q1 2020; derivative volatility materially affects this comparison.
Liquidity, debt and capital
- At March 31, 2021, cash was $17.9 million and restricted cash was $30.3 million; restricted cash held by less-than-wholly-owned subsidiaries is restricted to their operations and capital expenditures.
- Reported debt included $340.0 million under Matador’s revolving credit agreement, $334.0 million under San Mateo’s credit facility and approximately $1.05 billion of 5.875% senior notes due September 2026. The company also disclosed a $7.5 million unsecured SBA loan. San Mateo debt is non-recourse to Matador and its wholly owned subsidiaries.
- Matador repaid $100.0 million under its revolving facility during the quarter. Its elected commitment was $700 million; the borrowing base was reaffirmed at $900 million in April 2021. Matador said it was in compliance with its 4.00 maximum debt-to-EBITDA covenant at quarter-end. San Mateo had $334.0 million drawn against $375.0 million of lender commitments and repaid $19.0 million after quarter-end.
- Q1 capital expenditures were $144.8 million, including $86.0 million for drilling, completion and equipping and $16.4 million for midstream projects. The company began paying a quarterly dividend of $0.025 per share; a second $0.025 dividend was declared in April.
Outlook, commentary and risks
- Management planned to operate four Delaware Basin drilling rigs through the remainder of 2021, after adding a fourth rig in March. The 2021 budget was $525–$575 million for drilling, completion and equipping and $20–$30 million for midstream capital expenditures. Management said spending could be adjusted with market conditions.
- Management expected to fund remaining 2021 capital spending primarily from cash on hand, operating cash flow and San Mateo performance incentives, with borrowing or other capital sources possible if needed. No specific production or earnings guidance was provided in the text.
- Management described commodity prices and the industry outlook as uncertain, despite improvement in oil and gas prices. Key sensitivities include commodity prices, demand and COVID-19 effects, OPEC+ supply decisions, differentials, access to capital, production results and operating costs. Winter Storm Uri affected some production, but the company reported that it sold most production and had minimal volume impact from storage or downstream refinery issues.
- Open commodity derivatives had a net liability fair value of $79.3 million at March 31. The filing identifies exposure to oil and gas price volatility and notes that it had no contracts hedging natural-gas price differentials in 2021 or future periods.
- Contractual commitments included approximately $615.2 million under third-party transportation, gathering, processing and disposal agreements and $470.1 million under San Mateo agreements, including minimum-volume commitments. Management said potential deficiency fees could arise if minimum volumes are not met.
- Approximately 28% of Delaware Basin leasehold and mineral acreage was on federal lands. The filing discusses federal leasing and permitting actions and New Mexico’s adopted rule targeting a 98% natural-gas capture rate by the end of 2026 as regulatory risks.
- Management considered ordinary-course legal proceedings unlikely to have a material adverse effect. The filing reported no material changes to previously disclosed risk factors; disclosure controls were considered effective, with no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether higher commodity prices and production can sustain operating cash flow and the planned $545–$605 million combined drilling and midstream budget.
- The impact of hedges, including the $79.3 million derivative liability and unhedged natural-gas differential exposure, on realized prices and future cash flows.
- Liquidity available after distinguishing Matador’s unrestricted cash from restricted subsidiary cash, and the borrowing capacity and covenant headroom of both credit facilities.
- Progress on Delaware Basin drilling plans and production, alongside the company’s substantial minimum-volume and other contractual commitments.
- Potential effects of federal permitting and New Mexico emissions and gas-capture requirements on development plans, costs and production.