Matador Resources Company (NYSE: MTDR) — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report; the supplied filing text does not provide a standalone fourth-quarter income statement or cash-flow summary.
Business context
Matador is an independent U.S. oil and natural gas exploration and production company, with operations concentrated in the Delaware Basin of Southeast New Mexico and West Texas. It also operates in the Eagle Ford and Haynesville/Cotton Valley areas and conducts midstream business primarily through San Mateo, a 51%-owned joint venture with Five Point Energy.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $1.663 billion | $862.1 million |
| Oil and natural gas revenue | $1.701 billion | $744.5 million |
| Net income (loss) attributable to Matador shareholders | $585.0 million | $(593.2) million |
| Diluted earnings (loss) per share | $4.91 | $(5.11) |
| Net cash provided by operating activities | $1.053 billion | $477.6 million |
| Net cash used in investing activities | $(729.3) million | $(775.7) million |
| Net cash used in financing activities | $(328.6) million | $324.3 million provided |
| Adjusted EBITDA attributable to Matador shareholders | $1.052 billion | $519.3 million |
| Average daily production | 86,176 BOE/d | 75,175 BOE/d |
Oil and natural gas revenue rose 128%, reflecting higher realized prices and production. Average realized oil price was $67.58/Bbl, versus $37.38; average realized natural gas price was $6.06/Mcf, versus $2.14. Realized derivative losses were $220.1 million, compared with a $38.9 million gain in 2020. Total revenue includes derivative results, including those losses.
Operating income was $793.1 million, or approximately 47.7% of total revenue. Net income attributable to shareholders was approximately 35.2% of total revenue. These approximate margins use reported total revenue, which includes derivative gains and losses.
Cash and restricted cash totaled $86.9 million at year-end, including $48.1 million of unrestricted cash. Matador reported $100 million outstanding on its revolver and $1.05 billion of senior notes; San Mateo had $385 million outstanding on its separate facility, which is non-recourse to Matador and its wholly owned subsidiaries. The company also reported a $7.5 million SBA loan. The revolver borrowing base was $1.35 billion, but the elected commitment was $700 million; reported available capacity was approximately $554.2 million after letters of credit.
Capital spending included $431.1 million for drilling, completion and equipping, $238.6 million for property acquisitions and $63.4 million for midstream investments. The company reported generating free cash flow in each quarter, but the filing excerpt does not define that measure consistently for an annual comparison. Dividends declared and paid totaled $14.6 million in 2021; the quarterly rate increased from $0.025 to $0.05 per share during the year.
Material changes versus 2020
- Production increased 14% to 31.5 million BOE; average daily production increased 15%. Delaware Basin production accounted for 93% of total BOE, up from 90%.
- Net income swung from a $593.2 million loss to $585.0 million of income. The 2020 loss included a $684.7 million non-cash full-cost ceiling impairment; no impairment was recorded in 2021.
- Lease operating expense fell to $3.46/BOE from $3.81, while production taxes, transportation and processing rose to $5.69/BOE from $3.39, partly reflecting higher prices and revenue.
- Proved reserves grew 20% to 323.4 million BOE; proved developed reserves increased to 193.3 million BOE, or 60% of total, from 45.7% in 2020. The reserve-value measures increased substantially, primarily due to higher SEC pricing assumptions as well as reserve growth.
- Matador repaid $340 million net under its revolving facility. Its November 2021 credit amendment extended maturity to October 2026 and raised the borrowing base from $900 million to $1.35 billion, while the elected commitment remained $700 million.
Outlook, risks and unusual items
- 2022 plan: Management estimated $640–$710 million of drilling, completion and equipping capital expenditures and $50–$60 million of midstream capital expenditures. The Delaware Basin remains the primary focus; management expected to operate six rigs during 2022 and anticipated that 90% of operated wells turned to sales would have laterals of at least two miles.
- Management expected to fund 2022 spending principally with cash, operating cash flow and San Mateo performance incentives, with debt or other capital sources as potential alternatives. Budgets and activity may be adjusted based on prices, costs, results and capital availability.
- Management budgeted for a 10–15% increase in oilfield service costs compared with fourth-quarter 2021. Supply-chain constraints, further cost inflation, commodity-price volatility and oil/gas basis differentials could affect spending, realized prices and production.
- About 31% of Delaware Basin net acreage was on federal lands. Federal permitting policy, litigation and environmental review could delay or restrict drilling. The filing also highlights climate and methane rules, hydraulic-fracturing regulation, induced seismicity and produced-water disposal as operational and cost risks.
- Three purchasers accounted for 72% of oil, natural gas and NGL revenues in 2021, creating customer concentration risk. Minimum-volume and other midstream commitments totaled approximately $987.6 million over their contract terms; non-affiliate transportation, gathering, processing and disposal commitments were $597.3 million, with a further $390.3 million under San Mateo agreements.
- Reserves and standardized-measure values are sensitive to commodity prices and assumptions. The $4.38 billion standardized measure and $5.35 billion PV-10 are reserve-based estimates, not fair market values; most of the upward reserve revisions in 2021 reflected higher prices.
- An acquisition completed in December 2021 added production of approximately 3,500 BOE/d at closing. Consideration included $161.7 million cash, an additional $6.5 million subject to customary adjustments and contingent payments tied to oil prices; contingent consideration was remeasured at fair value.
- Management said ordinary-course legal matters were not expected to have a material adverse effect. An EPA and New Mexico environmental matter could result in monetary sanctions exceeding $300,000, though management considered a material adverse impact remote. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Key facts for investors to verify
- How much of 2021’s earnings and reserve-value improvement resulted from commodity prices, and how results change under lower-price scenarios.
- 2022 hedge volumes, price floors/ceilings and remaining exposure to oil and natural gas prices and basis differentials.
- Actual 2022 capital spending, service-cost inflation, rig activity and production compared with management’s budget and expectations.
- Debt and liquidity at the parent and San Mateo separately, including covenant headroom, facility availability and San Mateo’s refinancing needs.
- Progress on federal permits and leases, produced-water disposal capacity and seismicity-related restrictions in New Mexico.
- Performance and payment terms for the December 2021 acquisition’s contingent consideration, and developments in the EPA/NMED matter.