Business Context and Reporting Period
Matador Resources Company filed this Form 10-K for the fiscal year ended December 31, 2023. It is an independent U.S. oil and natural gas exploration and production company, with midstream operations. Its principal focus is the Delaware Basin in Southeast New Mexico and West Texas; it also operates in the Eagle Ford, Haynesville and Cotton Valley. This filing reports annual results, not a separate 2023 fourth-quarter income statement.
A major event was the 2023 Advance Acquisition: an initial cash purchase price of approximately $1.60 billion, plus $15.0 million of contingent consideration paid in the fourth quarter, followed by an approximately $81.0 million royalty-interest acquisition. The acquired production contributed $398.9 million of revenue and $166.9 million of net income from the initial acquisition’s closing through year-end.
Key Financial and Operating Metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $2.807 billion | $3.058 billion |
| Oil and natural gas revenue | $2.546 billion | $2.906 billion |
| Operating income | $1.209 billion | $1.759 billion |
| Net income attributable to Matador shareholders | $846.1 million; $7.05 diluted EPS | $1.214 billion; $10.11 diluted EPS |
| Adjusted EBITDA attributable to Matador shareholders (non-GAAP) | $1.850 billion | $2.127 billion |
| Cash from operating activities | $1.868 billion | $1.979 billion |
| Cash used in investing activities | $3.211 billion | $1.037 billion |
| Average daily production | 131,813 BOE/d | 105,465 BOE/d |
| Proved reserves at year-end | 460.1 million BOE | 356.7 million BOE |
Total revenue declined about 8%, while reported oil and gas production rose 25%. Oil and gas revenue fell 12%: oil revenue increased 1% as higher volumes largely offset lower prices, while natural gas revenue fell 49% amid a sharp decline in realized gas prices. Realized oil price was $77.88/Bbl versus $96.32; realized natural gas price was $3.25/Mcf versus $7.98. Operating income was about 43% of total revenue in 2023, compared with about 58% in 2022, calculated from reported figures.
Operating cash flow was below investing cash outflow, which included the Advance Acquisition and higher drilling and midstream spending. Management said the company generated free cash flow in each quarter, but this filing excerpt does not state a comparable annual free-cash-flow figure or definition. Lease operating expense increased to $5.06/BOE from $4.08, while depletion, depreciation and amortization rose to $14.90/BOE from $12.11.
At December 31, 2023, cash was $52.7 million and restricted cash was $53.6 million. Total debt was approximately $2.207 billion: $500 million under the company credit agreement, $522 million under San Mateo’s facility, and $1.199 billion of senior notes before unamortized issuance costs and discounts. The company reported $772.6 million of available borrowing capacity under its credit agreement at February 20, 2024. The San Mateo facility is non-recourse to Matador and its other subsidiaries.
Year-end proved reserves increased 29%, but the standardized measure fell 12% to $6.11 billion and PV-10 fell 16% to $7.70 billion (PV-10 is non-GAAP). Management attributed the decline primarily to lower SEC pricing assumptions for oil and gas, partly offset by reserve additions.
Material Changes Versus the Prior Year
- Production increased 25%, primarily due to the Advance Acquisition and Delaware Basin drilling; the Delaware Basin supplied 96% of 2023 production and about 98% of proved reserves.
- Lower realized commodity prices outweighed volume growth, reducing net income by about 30% and Adjusted EBITDA by about 13% year over year.
- Interest expense increased to $121.5 million from $67.2 million, reflecting acquisition-related borrowing, the 2028 Notes issuance and higher interest rates.
- Investing cash outflow increased substantially, including $1.676 billion for the Advance Acquisition and $1.193 billion of drilling, completion and equipping expenditures.
- Quarterly dividend increased from $0.15 to $0.20 per share in October 2023. Dividends declared for 2023 totaled $0.65 per share.
- Proved undeveloped reserves rose to 168.0 million BOE, but 31.5 million BOE were removed from that category because they were not developed or no longer expected to be developed within five years under current plans.
Outlook, Management Commentary and Risks
Management expects the Delaware Basin to remain the primary operational and capital focus in 2024. The announced 2024 budget is $1.10–$1.30 billion for drilling, completion and equipping and $200–$250 million for midstream capital expenditures. The latter includes the full expected cost of Pronto’s planned 200 MMcf/d processing-plant expansion; the company was evaluating potential partners. An eighth operated Delaware Basin rig was added in the first quarter of 2024. Management expects to fund the budget through cash, operating cash flow and San Mateo performance incentives, with borrowing or other capital sources possible if needed.
Key risks include commodity-price and basis-differential volatility, inflation and service costs, concentration in the Delaware Basin, federal permitting and environmental rules, water disposal and induced seismicity constraints, and production or takeaway interruptions. The company reported a January 2024 gas pipeline and processing interruption estimated to reduce production by approximately 5,500 BOE/d. It also disclosed approximately $764.2 million of remaining contractual obligations under agreements with minimum-volume commitments. Three purchasers accounted for 76% of 2023 oil, gas and NGL revenue.
At year-end, Matador reported compliance with its credit agreement; its maximum debt-to-EBITDA covenant is 3.50-to-1.0. Floating-rate borrowing costs, borrowing-base redeterminations, acquisition integration, reserve estimation and potential regulatory or environmental changes remain material considerations. Management said ordinary-course legal proceedings were not expected to have a material adverse impact. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Most Important Facts for Investors to Verify
- Whether production growth and acquisition integration translate into durable cash generation after the planned 2024 capital program and debt service.
- Current debt, borrowing availability, covenant headroom and interest-rate exposure, including the separate financial position of San Mateo.
- Realized oil and gas prices, regional differentials, and hedge coverage; at year-end, open commodity hedges were natural-gas basis swaps, not oil or NGL price hedges.
- Reserve assumptions and development execution, including the significant proved undeveloped reserve share, the 2023 downward revisions and the decline in reserve-value measures.
- Progress, cost and financing for the Pronto expansion, and exposure to minimum-volume commitments, produced-water disposal limits and midstream interruptions.
- Final purchase-price allocation for the Advance Acquisition and the accounting and funding for approximately $155.1 million of additional property acquisitions disclosed through February 20, 2024.