Matador Resources Company — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2023. Unaudited consolidated financial statements; comparison periods are the corresponding 2022 periods unless noted. Matador is an independent oil and gas producer, focused primarily on the Delaware Basin, with midstream operations.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $772.3 million | $840.9 million | $1,970.7 million | $2,350.6 million |
| Operating income | $340.0 million | $483.3 million | $843.7 million | $1,387.6 million |
| Net income attributable to Matador shareholders | $263.7 million | $337.6 million | $591.5 million | $960.4 million |
| Diluted earnings per share | $2.20 | $2.82 | $4.93 | $8.01 |
| Adjusted EBITDA attributable to Matador shareholders | $508.3 million | $539.7 million | $1,296.8 million | $1,665.4 million |
| Cash provided by operating activities | Not separately provided in the cash flow statement | Not separately provided in the cash flow statement | $1,249.5 million | $1,532.2 million |
Revenue and production: Q3 oil and natural gas revenues were $701.5 million, including oil revenue of $588.4 million and natural gas revenue of $113.2 million. Average production was 135,096 BOE per day, up 28% year over year; oil production rose 29% and natural gas production 28%. Realized oil price was $82.49 per barrel, down 13%; realized natural gas price was $3.56 per Mcf, down 61%. Third-party midstream revenue increased 21% to $29.9 million.
Profitability and costs: Operating margin was approximately 44% of total revenue in Q3 2023, versus 57% in Q3 2022, reflecting lower commodity prices and higher expenses. Lease operating expense rose to $5.34 per BOE from $4.38, and depletion, depreciation and amortization rose to $15.51 per BOE from $12.28. The nine-month effective tax rate was 18%, including $65.1 million of research and experimental expenditure tax credits recognized in Q3.
Cash flow and investment: Nine-month investing cash outflow was $2,662.3 million, including $1,608.4 million for the Advance acquisition and $855.5 million of drilling, completion and equipping expenditures. Financing provided $927.7 million; cash and restricted cash declined by $485.2 million to $62.2 million at September 30. The filing reports operating cash flow, but does not provide a company-defined free cash flow figure.
Liquidity and debt: At quarter-end, cash was $25.9 million and restricted cash was $36.2 million. Current assets were $711.4 million and current liabilities were $722.3 million. Debt included $530.0 million under Matador’s revolving Credit Agreement, $475.0 million under San Mateo’s facility, $699.2 million of 2026 notes and $500.0 million of 2028 notes—approximately $2.20 billion in aggregate principal borrowings and notes, before letters of credit. Matador’s Credit Agreement borrowing base was increased after quarter-end to $2.50 billion, with elected commitments of $1.325 billion; Matador repaid $30 million under the facility by October 24. San Mateo repaid $23 million after quarter-end. The filing says both borrowers were in covenant compliance at September 30.
Material changes versus the prior period
- Despite higher production, Q3 total revenue declined 8%, Matador-attributable net income declined 22%, and Adjusted EBITDA declined 6% year over year. Lower realized oil and, especially, natural gas prices were key drivers.
- For the first nine months, total revenue fell 16%, Matador-attributable net income fell 38%, and Adjusted EBITDA fell 22% year over year, principally because of lower commodity prices.
- The April 2023 Advance acquisition added producing properties, acreage and midstream assets for approximately $1.60 billion cash consideration, plus contingent consideration. Advance contributed $222.4 million of revenue and $120.3 million of net income from closing through September 30.
- Interest expense increased to $35.4 million in Q3 from $16.0 million, and to $85.8 million for nine months from $50.7 million, reflecting acquisition-related borrowing, the 2028 notes issuance and higher interest rates.
- Oil and gas property and equipment expanded substantially following the acquisition; total assets increased to $7.44 billion from $5.55 billion at December 31, 2022. The quarter-end cash balance was sharply lower, while debt increased.
Outlook, risks and unusual items
- Management planned to operate seven Delaware Basin rigs for the remainder of 2023 and expected to add an eighth rig in Q1 2024. Q3 included 64 gross Delaware Basin horizontal wells turned to sales.
- At October 24, 2023, the 2023 drilling, completion and equipping capital expenditure estimate remained $1.10–$1.22 billion. The midstream capital expenditure range was reduced to $135–$165 million from $150–$200 million.
- The Board increased the future quarterly dividend from $0.15 to $0.20 per share and declared a $0.20 dividend payable December 1, 2023. Future dividends remain subject to Board action and business conditions.
- Commodity prices, price differentials, operating cost inflation, pipeline capacity, acquisition integration, capital availability and production performance are material uncertainties. Management noted the Waha-Henry Hub differential widened to about negative $1.30 per MMBtu between September 30 and October 24. Matador had natural gas basis hedges for approximately 4.6 Bcf for the remainder of 2023 and 11.0 Bcf in each of 2024 and 2025.
- Three salt water disposal wells were subject to enhanced reporting or curtailment related to seismic activity. Regulatory restrictions or disposal, takeaway or fractionation interruptions could affect production, costs and cash flows.
- Minimum-volume and related transportation, gathering, processing and disposal commitments were significant: approximately $566.5 million with non-affiliates and $230.8 million with San Mateo at September 30. The company estimated that ceasing operations in affected areas would result in approximately $566.5 million of deficiencies under the non-affiliate agreements.
- Advance contingent consideration was valued at $20.963 million as a liability at September 30; $7.5 million was paid in October following September oil prices above the contractual threshold. The estimated fair value of remaining Q4 payments was $13.5 million at quarter-end.
- Management considered ordinary-course legal proceedings unlikely to have a material adverse effect. The filing identifies $28.0 million of unrecognized tax benefits related to research and experimental expenditures; the timing and outcome of resolution are uncertain.
Important facts for investors to verify
- Whether production growth and Advance integration can offset lower commodity prices and increased per-BOE operating and depletion costs.
- Current debt, borrowing availability, interest costs and covenant headroom, including the effects of the post-quarter Credit Agreement amendment and repayments.
- Cash generation after the acquisition and capital program, and the ability to fund spending and the higher dividend without further material borrowing.
- Realized oil and gas pricing, basis differentials, hedge coverage and the impact of any pipeline or produced-water disposal constraints.
- Final Advance purchase-price allocation and contingent consideration, along with the resolution and realizability of the tax credits and uncertain tax positions.
- Exposure to minimum-volume commitments, San Mateo obligations, seismicity-related restrictions and other regulatory or operating contingencies.