Matador Resources Company — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Unaudited consolidated results. Matador is an oil and gas exploration and production company with operations concentrated in the Delaware Basin, plus Eagle Ford and Haynesville/Cotton Valley assets and midstream operations.
Financial and operating performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total reported revenue | $173.9 million | $191.2 million |
| Oil and natural gas revenue | $193.3 million | $182.0 million |
| Operating income | $7.5 million | $73.4 million |
| Net income (loss) attributable to Matador shareholders | $(16.9) million; $(0.15) per share | $59.9 million; $0.55 per share |
| Operating cash flow | $59.2 million | $136.1 million |
| Capital expenditures and other investing cash flow | $214.9 million used | $220.8 million used |
| Adjusted EBITDA attributable to Matador shareholders (non-GAAP) | $124.8 million | $117.3 million |
- Production averaged 59,941 BOE/day, up 32% year over year. Oil output rose 30% to 3.1 million barrels; natural gas output rose 35% to 13.7 Bcf. Delaware Basin production averaged 52,600 BOE/day, up 41%.
- Average realized oil price was $49.64/Bbl, down from $62.20; natural gas was $2.85/Mcf, down from $3.33. Higher volumes lifted oil and gas revenue, but lower realized prices partly offset growth.
- Total reported revenue includes a $45.7 million unrealized derivative loss, compared with a $10.4 million unrealized gain in Q1 2018. The noncash mark-to-market loss was primarily associated with rising oil prices; derivative fair value fell from a $49.8 million net asset at year-end to $4.1 million at March 31. Realized derivative gains were $3.3 million.
- Expenses rose to $166.3 million from $117.8 million, including higher lease operating costs, midstream costs and DD&A. DD&A was $76.9 million versus $55.4 million. Interest expense increased to $17.9 million from $8.5 million.
- Operating cash flow excluding changes in operating assets and liabilities was $117.7 million, versus $114.8 million. Working-capital movements materially reduced reported operating cash flow year over year. Cash and restricted cash totaled $46.7 million at quarter-end, down from $84.0 million at year-end.
Balance sheet, debt and liquidity
- At March 31, cash was $20.8 million and restricted cash was $26.0 million. Total assets were $3.58 billion and shareholders’ equity was $1.79 billion.
- Debt included $140 million under Matador’s revolving credit agreement, $220 million under San Mateo I’s facility and approximately $1.05 billion of 5.875% senior notes due 2026. Matador’s revolver borrowing rose to $190 million by May 1; San Mateo I borrowings remained $220 million.
- In April, lenders raised Matador’s borrowing base to $900 million; the elected commitment remained $500 million. The revolver matures in October 2023. San Mateo I’s $250 million facility matures in December 2023 and is non-recourse to Matador and its wholly owned subsidiaries.
- Operating, investing and financing cash flows were $59.2 million provided, $214.9 million used and $118.4 million provided, respectively. Financing included $100 million of revolver borrowings.
Changes, outlook and risks
- Management planned to operate six Delaware Basin rigs through the remainder of 2019, subject to commodity prices and other conditions. The short-term South Texas rig was released in February to better align spending with cash flows.
- 2019 capital expenditure estimates were $640–$680 million for drilling, completion and equipping, plus $55–$75 million for midstream. Management expected to fund spending with cash, operating cash flow, San Mateo incentives and available credit, with potential asset sales or other financing sources as needed. Portions of Eagle Ford and Haynesville properties had been sold or were under contract for about $18 million through May 1.
- Matador formed San Mateo II with Five Point Energy in February; Matador owns 51% and Five Point 49%. Five Point committed to fund $125 million of the first $150 million of specified facility capital spending. Matador may earn up to $150 million in deferred performance incentives over five years, plus incentives tied to third-party volumes.
- Commodity prices and regional price differentials are material risks. In April 2019, Waha gas prices briefly turned negative amid pipeline outages; Matador temporarily shut in certain high gas-oil-ratio wells. The company said most Delaware Basin gas remained exposed to Waha pricing until the expected fourth-quarter 2019 start-up of the Gulf Coast Express pipeline. It had firm transportation and sales for approximately 110,000–115,000 MMBtu/day at Houston Ship Channel-based pricing, but no 2019 derivative coverage for oil and gas basis differentials.
- Contractual obligations included $52.1 million of non-operated drilling commitments expected within a year, and material gathering, processing, transportation and disposal commitments. The filing lists $2.69 billion of total contractual cash obligations; certain agreements impose deficiency fees if minimum volumes are not met. Management reported ordinary-course legal proceedings and considered a material adverse impact remote.
- Matador adopted the new lease standard, recognizing $62.3 million of right-of-use assets and liabilities at March 31, with no opening retained-earnings adjustment. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether production growth and realized prices generate cash sufficient to fund the 2019 capital program without materially increasing debt.
- How derivative fair-value changes, hedge volumes and basis differentials affect reported earnings and realized cash proceeds.
- Revolver utilization and availability after the borrowing-base redetermination, and the separate financial position and non-recourse debt of San Mateo I.
- Progress and timing of Gulf Coast Express and other takeaway infrastructure, including exposure to negative or discounted Waha prices.
- Performance of San Mateo II, Five Point’s capital contributions and incentives, and the company’s substantial minimum-volume and other contractual commitments.