Matador Resources Company — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual report; selected unaudited quarterly information reports fourth-quarter 2019 results separately. Matador is an independent U.S. oil and gas producer, focused primarily on the Delaware Basin, with additional Eagle Ford and Haynesville/Cotton Valley operations and midstream activities largely conducted through San Mateo joint ventures.
Financial and operating performance
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $983.7 million | $899.6 million |
| Oil and natural gas revenue | $892.3 million | $800.7 million |
| Operating income | $235.5 million | $363.3 million |
| Net income attributable to Matador shareholders | $87.8 million; $0.75 per diluted share | $274.2 million; $2.41 per diluted share |
| Adjusted EBITDA attributable to Matador shareholders | $610.8 million | $553.2 million |
| Net cash from operating activities | $552.0 million | $608.5 million |
| Oil-equivalent production | 66,203 BOE/d, up 27% | 52,128 BOE/d |
| Realized oil price, excluding derivatives | $54.34/Bbl | $57.04/Bbl |
| Realized natural gas price, excluding derivatives | $2.17/Mcf | $3.49/Mcf |
Oil production rose 26% to 14.0 million barrels and natural gas production rose 29% to 61.1 Bcf. The Delaware Basin generated 84% of annual BOE production and held approximately 92% of proved reserves. Fourth-quarter 2019 net income attributable to Matador shareholders was $24.0 million, or $0.21 per diluted share.
Net investing cash use was $904.0 million, including $730.2 million of oil and gas property capital expenditures and $192.0 million of midstream capital expenditures. Operating cash flow was therefore below total capital expenditures. The company reported $40.0 million of unrestricted cash and $25.1 million of restricted cash at year-end; restricted cash was primarily held by less-than-wholly-owned subsidiaries.
At December 31, 2019, debt included $1.05 billion principal amount of senior notes due 2026, $255.0 million drawn under Matador’s revolver and $288.0 million drawn under San Mateo I’s facility. The revolver borrowing base was $900.0 million and the elected commitment was $500.0 million at year-end. In February 2020, the elected commitment increased to $700.0 million; the company reported approximately $399.0 million of availability after letters of credit. San Mateo I reported approximately $70.8 million of availability under its $375.0 million facility at February 2020.
Material changes versus 2018
- Production growth lifted oil and gas revenue 11%, but lower realized prices—particularly for natural gas—offset part of the volume increase. Oil revenue increased 20%; natural gas revenue decreased 20%.
- Shareholder net income fell to $87.8 million from $274.2 million. The comparison included a $53.7 million unrealized derivative loss in 2019 versus a $65.1 million unrealized gain in 2018; these mark-to-market changes do not directly affect operating cash flow. Interest expense also rose to $73.9 million from $41.3 million, while 2018 included a $31.2 million debt-extinguishment premium.
- Operating cash flow declined despite higher production. Management attributed the underlying improvement before working-capital changes to increased volumes, partly offset by lower commodity prices; working-capital movements reduced reported 2019 cash flow.
- Proved reserves increased 17% to 252.5 million BOE, but the standardized measure fell 10% to $2.03 billion and PV-10 fell 13% to $2.25 billion, mainly reflecting lower SEC pricing assumptions. Approximately 58% of proved reserves were undeveloped.
- Average operated-well drilling and completion cost declined 24% to approximately $1,165 per lateral foot. Midstream third-party service revenue rose to $59.1 million from $21.9 million.
Outlook, risks and unusual items
- Management’s 2020 plan prioritizes the Delaware Basin, with six rigs planned. The stated capital budget is $690–$750 million for drilling, completion and equipment, plus $85–$105 million for Matador’s share of midstream spending. No 2020 production guidance is provided in the supplied filing text.
- The Black River Processing Plant expansion adds 200 MMcf/d of designed inlet capacity, taking planned total capacity to 460 MMcf/d; service was anticipated in summer 2020. San Mateo’s planned salt-water disposal capacity was approximately 335,000 Bbl/d by the end of first-quarter 2020.
- Management expected to fund the program with operating cash flow, cash, revolver and San Mateo facility borrowings, San Mateo performance incentives and Five Point’s capital carry. Asset sales or other monetizations may be considered to narrow any funding gap; proceeds were not forecast. The budget is discretionary and may change with prices, costs, results and access to capital.
- Commodity and basis-price volatility are significant risks. Waha gas prices were briefly negative in 2019, prompting temporary shut-ins of certain high gas-oil-ratio wells. The filing noted deteriorating early-2020 price conditions and no natural-gas derivative protection for basis differentials.
- Long-term gathering, processing, transportation and disposal agreements include minimum-volume obligations. The filing reported approximately $1.2 billion of obligations over contract terms; deficiencies may be payable if volumes fall short. Federal-land permitting, hydraulic-fracturing restrictions, emissions rules, induced seismicity, water availability, infrastructure constraints and potential well-cost or construction overruns are also identified risks.
- Two purchasers accounted for 67% of 2019 oil, natural gas and NGL revenue, creating customer concentration exposure. The company reported $1.83 billion of principal debt across Matador and San Mateo facilities, alongside substantial planned capital spending.
- The company received EPA and New Mexico Environment Department violation notices in November 2019 concerning alleged Clean Air Act and state-plan violations at New Mexico locations. Management viewed a material adverse outcome as remote; resolution could include monetary sanctions exceeding $100,000.
- Management reported effective disclosure controls and internal control over financial reporting; KPMG issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether production growth and drilling efficiency translate into operating cash flow sufficient to fund the 2020 program without materially increasing debt or relying on asset sales.
- Current borrowing-base availability, covenant headroom, debt maturities and San Mateo facility utilization; distinguish Matador’s debt from joint-venture debt.
- Actual realized prices, oil and gas basis differentials, hedge coverage and any production curtailments, especially given the early-2020 volatility discussed in the filing.
- Progress, cost and timing of the Black River expansion, associated gathering lines and disposal capacity, and the resulting third-party volumes and cash generation.
- Execution and economics of the substantial proved-undeveloped-reserve program, including reserve assumptions, development costs and the effect of commodity prices on reserve value.
- Minimum-volume commitments and potential deficiency payments, plus the status and financial impact of the EPA/NMED matter.