Business context and reporting period
Matador Resources Company’s unaudited 10-Q covers the three months ended March 31, 2022, with comparisons to Q1 2021. Matador explores for and produces oil and natural gas, principally in the Delaware Basin, and operates midstream services mainly through its San Mateo joint venture.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenues, including derivative losses | $565.7 million | $266.8 million |
| Oil and natural gas revenues | $626.5 million | $316.2 million |
| Operating income | $309.3 million | $92.7 million |
| Net income attributable to Matador shareholders | $207.1 million | $60.6 million |
| Diluted earnings per share | $1.73 | $0.51 |
| Net cash provided by operating activities | $329.0 million | $169.4 million |
| Net cash used in investing activities | $251.9 million | $108.9 million |
| Adjusted EBITDA attributable to Matador shareholders (non-GAAP) | $461.8 million | $198.1 million |
Total oil-equivalent production rose 27% to 8.46 million BOE, or approximately 94,000 BOE per day. Oil production increased 29% to 53,600 barrels per day; natural gas production increased 24% to 242.4 MMcf per day. Average realized prices before realized derivatives were $95.45 per barrel of oil and $7.63 per Mcf of natural gas.
Operating margin was approximately 54.7% of reported total revenues in Q1 2022; reported revenue includes realized and unrealized derivative losses. The company recorded $97.5 million in total derivative losses, including $75.0 million unrealized. The Q1 income tax provision was $68.5 million, versus $2.8 million a year earlier.
Liquidity, debt and capital
At March 31, 2022, cash was $63.0 million and restricted cash was $57.2 million; the restricted balance was primarily associated with San Mateo and was not freely available for general use. Current assets were $536.3 million and current liabilities were $537.9 million. Debt included $1.043 billion of senior notes, $50.0 million under Matador’s credit agreement and $405.0 million under San Mateo’s facility. Matador repaid its remaining $50.0 million credit-agreement borrowing after quarter-end; San Mateo repaid $30.0 million after quarter-end.
Q1 capital expenditures and property acquisitions drove investing outflows. The 2022 budget was $640–710 million for drilling, completion and equipping, plus $50–60 million for midstream investment. Matador paid a $0.05-per-share quarterly dividend and declared the same amount for payment in June 2022.
Material changes, outlook and risks
- Compared with Q1 2021, oil and gas revenue nearly doubled, driven by higher realized prices and increased production. Operating cash flow and Adjusted EBITDA also increased substantially. Higher derivative losses, taxes and operating costs partly offset those gains.
- Management planned to operate six Delaware Basin drilling rigs through the remainder of 2022, with approximately 90% of planned wells having anticipated completed lateral lengths of at least two miles. Management said the rig program could be adjusted as prices and conditions change.
- In April 2022, the borrowing base under Matador’s credit agreement increased from $1.35 billion to $2.0 billion, and the elected commitment rose from $700 million to $775 million. The amendment also increased the letter-of-credit sublimit and replaced LIBOR with a SOFR-based benchmark.
- Management noted uncertain commodity-price prospects and exposure to oil and gas price volatility, basis differentials, hedging outcomes, service-cost inflation, and supply-chain disruption. It also cited possible takeaway and fractionation constraints, regulatory and environmental requirements, induced-seismicity restrictions, and risks to drilling execution and access to capital.
- Minimum-volume and related transportation, gathering, processing and disposal commitments totaled about $552.1 million with third parties and $351.7 million with San Mateo. The third-party figure assumes operations ceased in the covered areas; actual obligations depend on volumes and contract terms. Management considered a material adverse outcome from ordinary-course legal proceedings remote.
- The fair value of contingent acquisition consideration rose to $16.0 million at quarter-end, reflecting a purchase-price adjustment tied to oil prices. The filing also reports forgiveness of a $7.5 million SBA loan during the quarter.
Important facts for investors to verify
- Whether commodity prices, realized differentials and hedge settlements support or reduce cash generation in subsequent quarters.
- Whether production growth and the six-rig program meet expectations within the stated capital budget, particularly as service costs and supply constraints evolve.
- Available unrestricted liquidity, covenant compliance and the effect of San Mateo’s debt and restricted cash on consolidated resources.
- The scale and timing of minimum-volume commitment costs, and any changes in takeaway, processing, disposal or induced-seismicity constraints.
- Final purchase-price adjustments for the 2021 acquisition and subsequent remeasurement of its contingent consideration.