Matador Resources Company — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. Matador is an independent U.S. oil and gas exploration and production company focused on the Delaware Basin, Eagle Ford, Haynesville and Cotton Valley.
Key financial results
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Oil and gas revenue | $71.8m | $96.6m | $222.1m | $274.6m |
| Total revenue, including derivative gains/losses | $98.4m | $112.2m | $248.9m | $277.1m |
| Net income (loss) attributable to Matador | ($242.1m) | $29.6m | ($449.4m) | $64.2m |
| Adjusted EBITDA, non-GAAP | $58.0m | $66.8m | $174.9m | $192.6m |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $185.9m | $180.4m |
- Q3 production rose 62% to 2.41 million BOE (26,137 BOE/day); nine-month production rose 75% to 6.94 million BOE. Growth was led by Delaware Basin development and higher Haynesville gas volumes.
- Lower commodity prices outweighed production growth: Q3 realized oil and gas prices before derivatives were $43.21/Bbl and $2.90/Mcf, versus $92.39/Bbl and $4.95/Mcf a year earlier. Nine-month prices were $47.36/Bbl and $2.83/Mcf, versus $95.45/Bbl and $5.53/Mcf.
- Q3 operating expenses included a $285.7m full-cost ceiling impairment; the nine-month charge was $581.9m, with no comparable 2014 charge. This non-cash write-down drove the reported losses. Nine-month DD&A was $143.5m; interest expense was $15.2m.
- At September 30, cash was $13.9m, current assets $126.5m and current liabilities $153.3m. Debt included $400m principal of 6.875% senior notes due 2023; no revolver borrowings were outstanding, with a $375m borrowing base and about $0.6m of letters of credit. The notes’ carrying value was $391.0m, net of issuance costs.
- Nine-month investing cash use was $405.6m, including $335.0m for oil and gas properties. Financing provided $225.1m; cash increased $5.5m to $13.9m.
Changes, outlook and risks
- Matador completed the HEYCO merger in February, acquiring acreage and properties in New Mexico for cash, stock and preferred shares; the preferred shares converted to common stock in April. It also issued $400m of senior notes and raised about $187.6m net in an April common-stock offering, using proceeds largely to repay revolver debt.
- Proved reserves at September 30 were 87.1 million BOE, up from 68.7 million at year-end 2014, but PV-10 fell to $692.7m from $1.043bn. Lower SEC benchmark commodity prices also caused some proved undeveloped gas reserves to be reclassified as contingent resources.
- Management’s 2015 capital budget was $425m, excluding HEYCO-related expenditures; $356m had been incurred by September 30. The company expected to fund remaining spending through operating cash flow, cash, available credit, joint ventures and possible asset or securities sales. Management said spending could be deferred or redirected as conditions change.
- On October 1, after quarter-end, Matador sold the Loving County gathering and processing system to EnLink for approximately $143m before customary adjustments. It retained certain local midstream assets and entered a 15-year fixed-fee gathering and processing agreement with volume commitments; the filing estimates approximately $215m of future undiscounted minimum obligations under that agreement.
- After quarter-end, the revolver maturity was extended to October 2020 and its $375m borrowing base reaffirmed. Management cited commodity-price volatility, reserve and production uncertainty, capital-market access, drilling results, and operational and transportation constraints as key risks. Drilling-rig termination obligations were approximately $43.8m; non-operated well commitments were $21.8m.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. Ordinary-course lawsuits were not expected by management to have a material adverse effect.
Investor verification points
- Assess the sensitivity of future ceiling-test impairments and proved reserves to commodity prices, reserve estimates and development costs.
- Verify the post-quarter EnLink sale proceeds, adjustments, use of proceeds and economics of the long-term volume commitments.
- Review liquidity against the capital budget and contractual commitments, including rig termination exposure and the revolver’s covenants and borrowing-base terms.
- Distinguish cash operating performance from derivative mark-to-market effects and the non-cash impairment when evaluating earnings and Adjusted EBITDA.
- Monitor whether planned drilling delivers expected production and cost reductions, and whether lower hedge floors reduce cash-flow protection in 2016.