Matador Resources Company Reports First Quarter 2023 Financial Results and Provides Operational Update
DALLAS–(BUSINESS WIRE)–Matador Resources Company (NYSE: MTDR) (“Matador” or the “Company”) today reported financial and operating results for the first quarter of 2023. A short slide presentation summarizing the highlights of Matador’s first quarter 2023 earnings release is also included on the Company’s website at www.matadorresources.com on the Events and Presentations page under the Investor Relations tab.
Management Summary Comments
Joseph Wm. Foran, Matador’s Founder, Chairman and CEO, observed, “Our results for the first quarter of 2023 were above our expectations both operationally and financially and constituted a strong start to the year. We set new operational records in the first quarter. Then, shortly following the end of the first quarter, we closed the acquisition of Advance Energy Partners Holdings, LLC (“Advance”) for approximately $1.6 billion that added over 100 million barrels of oil and natural gas equivalent reserves to the 357 million barrels of oil and natural gas equivalent reserves that we already had. This acquisition sets up another record year of production in 2023 and an even better 2024. For additional information regarding our operational and financial results in the first quarter of 2023 and the closing of the Advance acquisition, please see the set of seven slides identified as ‘Chairman’s Remarks’ (Slides A through G) on our website.
Stronger than Expected Results in First Quarter 2023
“During the first quarter of 2023, Matador achieved better-than-expected average oil and natural gas equivalent production of 106,654 BOE per day, which was 6% better than our previous expectations of approximately 101,000 barrels of oil and natural gas equivalent (“BOE”) per day. This outperformance was primarily attributable to (i) better-than-expected production in our prolific Stateline asset area, (ii) the timing and performance of pipeline services and connections and (iii) fewer days of shut-in production than originally anticipated, including on our Rodney Robinson acreage, as the eight wells drilled on that acreage were completed faster than expected primarily as a result of our use of simultaneous fracturing technology.
“In addition to the better-than-expected production during the first quarter of 2023, we also had lower-than-expected capital expenditures for both our drilling, completing and equipping costs and our midstream capital expenditures. These lower capital expenditures are primarily due to the timing of operations and our planned midstream projects. Innovation and operating efficiencies, which include faster drill times, dual-fuel fracturing fleets, simultaneous and remote fracturing operations and the use of existing facilities, continue to improve and help to mitigate the inflationary pressure of service costs. The Company expects to utilize dual-fuel fracturing equipment for over 95% of wells completed in 2023 and to increase its use of simultaneous fracturing operations from 45% in 2022 to over half of our 2023 completions.
The Advance Acquisition
“The closing of the Advance acquisition on April 12, 2023 continues Matador’s long history of profitable growth at a measured pace. In the Advance acquisition, we acquired approximately 18,500 net acres in the core of the northern Delaware Basin, most of which is either adjacent to or very close to some of our best acreage. Together with our other acreage bolt-on acquisitions in 2023, we are pleased to announce that we now have 150,000 net acres in the Delaware Basin (see Slide A) with a significant increase in our total proved oil and natural gas reserves to approximately 465 million BOE (see Slide B). These reserves are estimated to have a PV-10 (present value discounted at 10%) value of approximately $12 billion as discussed below.
“We estimate production from the Advance wells averaged approximately 25,450 BOE per day during the first quarter of 2023 based upon Advance’s production records, which was better than we had anticipated. While this increased production was not included in Matador’s reported production for the first quarter, it was part of the purchase price adjustment at closing. We are also encouraged that these existing wells we acquired from Advance are exceeding our original expectations. We anticipate that production from the Advance assets will grow in the second half of the year when we expect to turn to sales 21 wells that are currently being completed.
“There are many other opportunities that are ahead of us as we integrate the Advance assets with Matador’s existing assets. These assets are complementary to our existing acreage and add to our significant inventory of A+ locations. For example, the Advance assets provide synergies with our existing Pronto Midstream (“Pronto”) natural gas gathering and processing system as we plan to connect them in late 2023 or early 2024 (see Slide C). This connection should not only provide additional flow assurance for our wells but also build the value of our existing midstream business.
Financing Activities
“We funded the Advance acquisition with a combination of cash on hand, free cash flow and borrowings under our reserves-based lending credit agreement (the “RBL credit agreement”). The borrowing base under the RBL credit agreement is $1.25 billion and does not yet include any reserves for the assets we acquired in the Advance acquisition. On March 31, 2023, we successfully increased the elected commitment under the RBL credit agreement from $775 million to $1.25 billion, of which only $625 million is currently drawn.
“In addition, on April 3, 2023, we launched a private offering of $400 million of senior unsecured notes due 2028, which was oversubscribed by $3 billion. As a result of high demand for these bonds, we increased the size of the offering from $400 million to $500 million and issued the 6.875% senior unsecured notes at a price of 98.96% of their face value. The successful execution of this offering was truly a team effort and very gratifying to us. We are very appreciative of the support of our banking partners and the shareholders, bondholders and other friends that placed orders for these bonds so that we could upsize the offering at a price that was better than we had originally expected.
“Following the bond offering, we had over $600 million in liquidity, which provides additional flexibility and optionality as we continue with our previously announced plans for 2023. We intend to use our free cash flow for the remainder of the year primarily to repay debt under our RBL credit agreement, continue measured growth through the drillbit and pay our fixed dividend while continuing to opportunistically pursue strategic bolt-on acquisitions and midstream opportunities that may arise. Importantly, the Advance acquisition should not significantly impact Matador’s leverage profile, as we expect to maintain a pro forma leverage ratio below 1.0x throughout 2023 at current commodity prices. In fact, we were able to repay more borrowings than we anticipated this month under the RBL credit agreement following the Advance acquisition, and assuming current commodity prices, we anticipate being able to fully repay the borrowings under the RBL credit agreement in the second half of 2024 (see Slide D).
Looking Ahead
“In addition to acquiring Advance, our operations team has remained busy finding new and innovative ways to reduce costs and increase production from our existing acreage. We are currently testing our first batch of ‘horseshoe’ wells in our Wolf asset area in West Texas, which will allow the Company to drill two-mile lateral wells in one-mile land-locked sections (see Slide E). By drilling two-mile long ‘U’ shaped laterals, we should increase our inventory of two-mile locations across Matador’s Delaware Basin assets and continue expanding capital efficiencies by accessing longer laterals in sections previously limited to one-mile wells. We estimate approximately $10 million in cost savings will be realized by drilling two ‘U’ shaped two-mile wells as compared to four one-mile lateral wells in this section. We are excited about this test and look forward to discussing the results of the horseshoe wells later in the year.
“Due to the strong start in the first quarter of 2023, the Advance acquisition and our other operations, we expect full year 2023 total oil equivalent production to be near the high end of the previously announced guidance range of 44.35 million BOE to 46.25 million BOE. In addition, we expect to achieve approximately 40% growth in year-over-year oil production in the fourth quarter of 2023 (see Slide F).
“As many of you may recall, the Matador organization first began in 1983 with $270,000 in contributed capital from 17 friends and family members and has grown to a company with an enterprise value of approximately $8 billion since then (see Slide G). We are grateful for the many individuals that have been critical to building Matador and the friendships we have made together. Our success is the result of the efforts and support of many dedicated board members, staff members, shareholders, bondholders and other friends. Notably, many of Matador’s original shareholders or their families remain shareholders today. Thank you to each of you who has supported Matador as we have grown from a company of a few hundred thousand dollars in initial capital in 1983 to a top 10 oil and natural gas producer in the state of New Mexico today. We are more excited than ever about the future of Matador and look forward to continuing to build Matador together into a bigger, better company.”
First Quarter 2023 Matador Operational and Financial Highlights
- Average production of 106,654 BOE per day (58,941 barrels of oil per day)
- Net cash provided by operating activities of $339.5 million
- Adjusted Free Cash Flow of $57.2 million
- Net income of $163.1 million, or $1.36 per diluted common share
- Adjusted net income of $180.0 million, or adjusted earnings of $1.50 per diluted common share
- Adjusted EBITDA of $365.2 million
- San Mateo net income of $32.2 million
- San Mateo Adjusted EBITDA of $48.7 million
- Drilling, completion and equipping capital expenditures of $294.8 million
- Midstream capital expenditures of $8.7 million
Advance Acquisition Highlights
- Closed on April 12, 2023 for an initial cash purchase price of $1.6 billion, subject to post-closing adjustments
- Approximately 18,500 net acres (99% held by production) in the core of the northern Delaware Basin, most of which is strategically located in Matador’s Ranger asset area in Lea County, New Mexico near Matador’s existing properties
- 406 gross (203 net) horizontal locations identified for future drilling, including prospective targets throughout the Wolfcamp, Bone Spring and Avalon formations
- Completing 21 gross (20 net) wells that are expected to be turned to sales in the second half of 2023
- Drilling 21 gross (19 net) wells that are expected to be turned to sales in early 2024
- PV-10 of the proved oil and natural gas reserves at December 31, 2022 of approximately $2.86 billion using the same unweighted arithmetic average first-day-of-the-month prices for the previous 12-month period that was used to value the Company’s reserves at December 31, 2022, which were $90.15 per barrel of oil and $6.36 per MMBtu of natural gas
Note: The Standardized Measure and PV-10 of the Company’s reserves as of December 31, 2022 were $6.98 billion and $9.13 billion, respectively. The PV-10 of the Advance reserves was estimated to be $2.86 billion as of December 31, 2022 using the same unweighted arithmetic average first-day-of-the-month prices for the previous 12-month period being used to value the Company’s reserves at December 31, 2022, which are $90.15 per barrel of oil and $6.36 per MMBtu of natural gas. PV-10 is a non-GAAP financial measure, which differs from the GAAP financial measure of “Standardized Measure” because PV-10 does not include the effects of income taxes on future income. The income taxes related to the Advance assets as of December 31, 2022 were unknown because the tax basis in such properties as of December 31, 2022 is not known and is subject to many variables. As such, the Company has not provided the Standardized Measure of the Advance assets or a reconciliation of PV-10 to Standardized Measure with respect to the Advance assets.
All references to Matador’s net income, adjusted net income, Adjusted EBITDA and adjusted free cash flow reported throughout this earnings release are those values attributable to Matador Resources Company shareholders after giving effect to any net income, adjusted net income, Adjusted EBITDA or adjusted free cash flow, respectively, attributable to third-party non-controlling interests, including in San Mateo Midstream, LLC (“San Mateo”). Matador owns 51% of San Mateo. For a definition of adjusted net income, adjusted earnings per diluted common share, Adjusted EBITDA, adjusted free cash flow and PV-10 and reconciliations of such non-GAAP financial metrics to their comparable GAAP metrics, please see “Supplemental Non-GAAP Financial Measures” below.
Operational and Financial Update
First Quarter 2023 Oil, Natural Gas and Total Oil Equivalent Production Above Expectations
Matador’s average daily oil and natural gas production increased 14% year-over-year from 93,969 BOE per day in the first quarter of 2022 to 106,654 BOE per day in the first quarter of 2023. Matador’s production for the first quarter of 2023 of 106,654 BOE per day exceeded the Company’s expectations for the quarter of a range from 100,500 to 101,500 BOE per day, as summarized in the table below. The primary drivers behind this outperformance were (i) better-than-expected production from the Company’s Stateline asset area, (ii) the timing and performance of pipeline services and connections and (iii) fewer days of shut-in production than originally anticipated for Matador’s and other offset operators’ activity in the Antelope Ridge asset area. In particular, the Rodney Robinson properties in western Antelope Ridge had less production shut in than anticipated, as the eight wells drilled on that acreage were completed faster than expected as a result of Remote Simul-Frac operations. In addition, Matador turned to sales seven gross (3.1 net) more operated horizontal wells during the first quarter than the Company’s original estimates and experienced better-than-expected production from non-operated properties.
|
Production |
Q1 2023 Average Daily Volume |
Q1 2023 Guidance Range(1) |
Difference(2) |
YoY (3) |
|
Total, BOE per day |
106,654 |
100,500 to 101,500 |
+6% Better than Guidance |
+14% |
|
Oil, Bbl per day |
58,941 |
55,000 to 56,000 |
+6% Better than Guidance |
+10% |
|
Natural Gas, MMcf per day |
286.3 |
270.7 to 274.7 |
+5% Better than Guidance |
+18% |
|
(1) |
Production change previously projected, as provided February 21, 2023. |
|
|
(2) |
As compared to midpoint of guidance provided on February 21, 2023. |
|
|
(3) |
Represents year-over-year percentage change from the first quarter of 2022. |
First Quarter 2023 Wells Turned to Sales
During the first quarter of 2023, Matador turned to sales 24 gross (18.0 net) operated horizontal wells with an average completed lateral length of approximately 9,800 feet. The Company was able to turn to sales seven gross (3.1 net) more operated horizontal wells in the first quarter of 2023 than anticipated, primarily due to operating, capital and midstream efficiencies. The table below provides a summary of our operated and non-operated activity in the first quarter of 2023.
|
First Quarter 2023 Quarterly Well Count |
|||||||||
|
|
Operated |
|
Non-Operated |
|
Total |
Gross Operated and Non-Operated |
|||
|
Asset/Operating Area |
Gross |
Net |
|
Gross |
Net |
|
Gross |
Net |
Well Completion Intervals |
|
Western Antelope Ridge (Rodney Robinson) |
8 |
7.7 |
|
— |
— |
|
8 |
7.7 |
4-2BS, 2-3BS Carb, 2-WC B |
|
Antelope Ridge |
4 |
3.1 |
|
1 |
0.0 |
|
5 |
3.1 |
1-1BS, 2-2BS, 2-3BS |
|
Arrowhead |
— |
— |
|
11 |
0.2 |
|
11 |
0.2 |
3-2BS, 2-WC A, 6-Yeso |
|
Ranger |
3 |
1.3 |
|
7 |
0.3 |
|
10 |
1.6 |
6-2BS, 3-3BS, 1-WC A |
|
Rustler Breaks |
9 |
5.9 |
|
11 |
0.5 |
|
20 |
6.4 |
3-1BS, 9-2BS, 4-WC A, 4-WC B |
|
Stateline |
— |
— |
|
— |
— |
|
— |
— |
No wells turned to sales in Q1 2023 |
|
Wolf/Jackson Trust |
— |
— |
|
— |
— |
|
— |
— |
No wells turned to sales in Q1 2023 |
|
Delaware Basin |
24 |
18.0 |
|
30 |
1.0 |
|
54 |
19.0 |
|
|
South Texas |
— |
— |
|
— |
— |
|
— |
— |
No wells turned to sales in Q1 2023 |
|
Haynesville Shale |
— |
— |
|
16 |
0.1 |
|
16 |
0.1 |
16-HSVL |
|
Total |
24 |
18.0 |
|
46 |
1.1 |
|
70 |
19.1 |
|
|
Note: WC = Wolfcamp; BS = Bone Spring; 3BS Carb = Third Bone Spring Carbonate; Yeso = Yeso; HSVL = Haynesville. For example, 4-2BS indicates four Second Bone Spring completions and 2-WC B indicates two Wolfcamp B completions. Any “0.0” values in the table above suggest a net working interest of less than 5%, which does not round to 0.1. |
First Quarter 2023 Realized Commodity Prices
The following table summarizes Matador’s realized commodity prices during the first quarter of 2023, as compared to the fourth quarter of 2022 and the first quarter of 2022.
|
|
Sequential (Q1 2023 vs. Q4 2022) |
|
YoY (Q1 2023 vs. Q1 2022) |
||||||||||||
|
Realized Commodity Prices |
Q1 2023 |
|
Q4 2022 |
|
Sequential Change(1) |
|
Q1 2023 |
|
Q1 2022 |
|
YoY Change(2) |
||||
|
Oil Prices, per Bbl |
$75.74 |
|
$83.90 |
|
Down 10% |
|
$75.74 |
|
$95.45 |
|
Down 21% |
||||
|
Natural Gas Prices, per Mcf |
$3.93 |
|
$5.65 |
|
Down 30% |
|
$3.93 |
|
$7.63 |
|
Down 48% |
||||
First Quarter 2023 Operating Expenses
Matador plans to continue to focus on cost control in the areas of lease operating expenses, general and administrative expenses and plant and other midstream services operating expenses. The Company has already implemented measures to reduce costs and increase operating efficiencies in these areas. Matador believes these efforts are beginning to show improvements in these areas.
During the first quarter of 2023, Matador’s total lease operating expenses were $4.63 per BOE, which was a 16% sequential increase from $3.98 per BOE in the fourth quarter of 2022 and a 15% year-over-year increase from $4.01 per BOE in the first quarter of 2022, primarily due to the number of wells, chemical costs, weather and ad valorem costs. Matador expects the Advance acquisition will increase lease operating expenses during the remainder of 2023, although we anticipate mitigating this increase by targeting improvements in workover, supervision and repair and maintenance costs.
Matador’s general and administrative expenses decreased 30% sequentially from $3.36 per BOE in the fourth quarter of 2022 to $2.34 per BOE in the first quarter of 2023. General and administrative expenses in the fourth quarter reflected year-end bonus payments made to Matador’s employees related to record 2022 performance. In addition, the value of employee stock awards that are settled in cash, which are remeasured at each quarterly reporting period, decreased between the periods due to the fact that Matador’s share price decreased 17% from $57.24 at December 31, 2022 to $47.65 at March 31, 2023. The Company expects general and administrative expenses for full year 2023 will range between $2.50 to $3.50 per BOE.
During the first quarter of 2023, Matador’s plant and other midstream services operating expenses, which includes the costs to operate San Mateo and Pronto, were $3.23 per BOE, a 13% increase from $2.85 per BOE in the fourth quarter of 2022. The first quarter of 2023 included non-recurring, one-time repair and maintenance costs for Pronto’s Marlan cryogenic natural gas processing plant and gathering system. Plant and other midstream services operating expenses increased 40% from $2.30 per BOE in the first quarter of 2022 because Matador purchased Pronto on June 30, 2022. The Company expects plant and other midstream services operating expenses per BOE will decrease in the second quarter and throughout the remainder of 2023. Matador expects full year 2023 plant and other midstream services operating expenses will range between $2.50 to $3.00 per BOE.
First Quarter 2023 Capital Expenditures
Matador’s drilling, completing and equipping (“D/C/E”) and midstream capital expenditures were better than expected for the first quarter of 2023 as set forth in the table below. Matador achieved approximately $8 million of cost savings on its D/C/E capital expenditures in the first quarter, primarily as a result of improvements in completion capital efficiencies with dual-fuel pressure pumping and Simul-Frac completions. Matador’s midstream capital expenditures were $8.7 million in the first quarter of 2023, 81% below the Company’s estimate of $45 million for the quarter mostly due to the timing of projects underway during the quarter with most of these costs currently expected to be incurred in the second quarter of 2023.
|
Q1 2023 Capital Expenditures ($ millions) |
Actual |
Guidance(1) |
Difference vs. Guidance(2) |
||
|
D/C/E |
$294.8 |
$315.0 |
6% less than estimated |
||
|
Midstream |
$8.7 |
$45.0 |
81% less than estimated |
||
|
(1) |
Midpoint of guidance as provided on February 21, 2023. |
|
|
(2) |
As compared to the midpoint of guidance provided on February 21, 2023. |
Midstream Update
San Mateo’s operations in the first quarter of 2023 were highlighted by better-than-expected operating and financial results. These strong results reflect not only better-than-expected volumes delivered by Matador during the first quarter of 2023, but also increased and stronger-than-expected volumes delivered by other San Mateo customers as a result of several new business opportunities recently awarded to San Mateo.
Operationally, natural gas gathering and processing volumes achieved in the first quarter of 2023 were all-time quarterly highs for San Mateo and are shown in the table below, along with other San Mateo throughput volumes, as compared to the fourth quarter of 2022 and the first quarter of 2022. The volumes in the table do not include the full quantity of volumes that would have otherwise been delivered by certain San Mateo customers subject to minimum volume commitments (although partial deliveries were made in each period), but for which San Mateo recognized revenues during each period.
|
|
Sequential (Q1 2023 vs. Q4 2022) |
|
YoY (Q1 2023 vs. Q1 2022) |
||||||||
|
San Mateo Throughput Volumes |
Q1 2023 |
|
Q4 2022 |
|
Change(1) |
|
Q1 2023 |
|
Q1 2022 |
|
Change(2) |
|
Natural gas gathering, MMcf per day |
333 |
|
305 |
|
+10% |
|
333 |
|
267 |
|
+25% |
|
Natural gas processing, MMcf per day |
352 |
|
328 |
|
+7% |
|
352 |
|
253 |
|
+39% |
|
Oil gathering and transportation, Bbl per day |
41,900 |
|
46,000 |
|
-9% |
|
41,900 |
|
47,800 |
|
-12% |
|
Produced water handling, Bbl per day |
373,000 |
|
386,000 |
|
-4% |
|
373,000 |
|
344,000 |
|
+8% |
|
(1) |
First quarter 2023 as compared to fourth quarter 2022. |
|
|
(2) |
First quarter 2023 as compared to first quarter 2022. |
Second Quarter 2023 Estimates
Second Quarter 2023 Estimated Oil, Natural Gas and Total Oil Equivalent Production Growth
As noted in the table below, Matador anticipates its average daily oil equivalent production should increase 19% from 106,654 BOE per day in the first quarter of 2023 to approximately 126,500 BOE per day in the second quarter of 2023. This significant sequential increase is primarily attributable to the closing of the Advance acquisition in April 2023. The Company’s estimated production of approximately 126,500 BOE per day in the second quarter is 8,500 BOE per day more than Matador’s original expectations provided on February 21, 2023. This increase in expected second quarter production is primarily attributable to (i) additional production from the Advance properties, which production exceeded our expectations, (ii) accelerated production driven by operating and capital efficiencies turning wells to sales ahead of schedule and (iii) Pronto’s first direct connection to Matador in the Ranger asset area, which was completed in April 2023 and provides additional flow assurance and confidence that Matador can increase its production forecasts on these better-than-expected wells.
|
|
Q1 and Q2 2023 Production Comparison |
|||
|
Period |
Average Daily Total Production, BOE per day |
Average Daily Oil Production, Bbl per day |
Average Daily Natural Gas Production, MMcf per day |
% Oil |
|
Q1 2023 |
106,654 |
58,941 |
286.3 |
55% |
|
Q2 2023E(1) |
125,500 to 127,500 |
75,000 to 76,000 |
304.0 to 308.0 |
60% |
Contacts
Mac Schmitz
Vice President – Investor Relations
(972) 371-5225
