Matador Resources Company Reports Fourth Quarter and Full Year 2021 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 fourth quarter and full year 2021. A slide presentation summarizing the highlights of Matador’s fourth quarter and full year 2021 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. In a separate press release issued today, Matador also provided its 2022 operating plan and 2022 market guidance.

Management Summary Comments

Joseph Wm. Foran, Matador’s Founder, Chairman and CEO, commented, “On both our website and the webcast planned for tomorrow’s earnings conference call is a set of six slides identified as ‘Chairman’s Remarks’ (Slides A through F) to add color and detail to my remarks. We invite you to review these slides in conjunction with my comments below, which are intended to provide context for Matador’s outstanding results for the fourth quarter and full year 2021.

“The year 2021 was a tremendous year for Matador, including record total oil and natural gas production of 31.5 million barrels of oil equivalent, record oil and natural gas revenues of $1.7 billion, record net income of $585 million, record earnings per diluted common share of $4.91 and record Adjusted EBITDA of $1.05 billion, among other milestones (see Slide A). San Mateo also had a record year in 2021, including all-time high throughput volumes for natural gas gathering and processing, oil gathering and transportation and water handling, as well as record net income of $113.6 million and record Adjusted EBITDA of $154.3 million. In 2021, both Matador and San Mateo generated free cash flow in all four quarters, and we instituted and then raised our dividend to begin returning additional cash to our shareholders. We also aggressively paid down debt and ended the year with a leverage ratio of 1.1x, the lowest we have achieved since mid-2014. As you will see throughout this earnings release, Matador finished 2021 strong and entered 2022 in the best shape it has ever been, having accomplished all five of its primary goals for 2021—to reduce debt, to increase shareholder returns, to reduce drilling and completions costs per lateral foot, to increase capital efficiency and to achieve record operational results! The Board and I would like to once again acknowledge and express our sincere appreciation to all Matador and San Mateo employees and contractors for their continued strong execution and teamwork, which made these record results possible.

Fourth Quarter 2021 Highlights and Achievements

“The fourth quarter of 2021 was another excellent quarter for Matador yielding strong production and financial results that contributed significantly to our record results for full year 2021. During the fourth quarter, Matador achieved better-than-expected oil, natural gas and total oil equivalent production and record oil and natural gas revenues, net income and Adjusted EBITDA (see Slide B). San Mateo also finished 2021 on a high note, including better-than-expected financial results (see Slide C).

“Net cash provided by operating activities in the fourth quarter was $334.5 million, a 15% sequential increase, leading to fourth quarter 2021 adjusted free cash flow of $119.3 million. This adjusted free cash flow included $11.0 million in performance incentives received by Matador from our midstream joint venture partner, Five Point Energy LLC, for the 11 Boros wells turned to sales and connected to San Mateo during the second half of 2021. Matador repaid $20 million in borrowings outstanding under its reserves based revolving credit facility in the fourth quarter of 2021 and reduced the borrowings outstanding under its reserves-based revolving credit facility to $100 million at December 31, 2021 from $440 million at year-end 2020. Matador expects to repay another $25 million in borrowings outstanding by the end of February 2022, and as a result of these repayments, Matador expects to reduce the borrowings outstanding under the reserves-based revolving credit facility to $75 million, a reduction of $400 million, when compared to $475 million at the end of the third quarter of 2020. Matador’s leverage ratio under the reserves-based revolving credit facility declined to 1.1x at year-end 2021, a significant reduction from 2.9x at year-end 2020, and, again, marking Matador’s lowest leverage ratio since mid-2014 (see Slide D).

Key 2021 Milestones Achieved, Along with Record Capital Efficiency

“Matador’s 2021 priorities and milestones are summarized in Slide E, and we executed very well on this operating and capital efficiency plan throughout 2021. During the fourth quarter of 2021, we achieved our final key operational milestone when we turned to sales nine new wells in our Greater Stebbins Area in December. Overall, we believe Matador’s 2021 operating program was a tremendous success and made significant progress in all these areas. Drilling and completion costs averaged $670 per completed lateral foot for 2021, an all-time low on an annual basis, and a year-over-year decrease of 21% from $850 per completed lateral foot in 2020, our previous all-time low (see Slide F). During 2021, Matador turned to sales 47 gross (44.2 net) operated horizontal wells in the Delaware Basin with an average lateral length of approximately 10,500 feet, all but one of which had a lateral length of two miles or longer. Notably, these 47 wells, in aggregate, including the costs of the nine new Greater Stebbins Area wells we turned to sales in December, had already achieved payout by the end of the year. Obviously, these wells should continue to provide Matador with strong operating cash flows for many years to come.

2022 Operating Plan and Market Guidance

“Finally, in conjunction with this earnings release, we have also released today our 2022 operating plan and market guidance. As you will see in that companion release, we believe that 2022 should again be exciting for Matador and all of its stakeholders, as we continue developing our excellent Delaware Basin assets, generating significant free cash flow, paying down debt, evaluating potentially accretive acquisition opportunities and returning cash to shareholders through increases to the dividend as our performance allows. The Matador staff in both the office and in the field are growing in teamwork, expertise and experience and are due the credit for generating these results. We expect to have record production results again in 2022 and should oil and natural gas prices continue to remain strong throughout 2022, we believe our 2022 operating plan, in the capable hands of our office and field staff, should generate record financial results and cash flows as well, while generating substantial value growth for all our stakeholders in the year ahead and for years to come.”

Fourth Quarter 2021 Operational and Financial Highlights

Net Cash Provided by Operating Activities and Adjusted Free Cash Flow

• Fourth quarter 2021 net cash provided by operating activities was $334.5 million (GAAP basis), leading to fourth quarter 2021 adjusted free cash flow (a non-GAAP financial measure) of $119.3 million.

Net Income, Earnings Per Share and Adjusted EBITDA

• Fourth quarter 2021 net income (GAAP basis) was $214.8 million, or net income of $1.80 per diluted common share, a sequential increase from net income of $203.6 million in the third quarter of 2021, and a significant year-over-year increase from a net loss of $89.5 million in the fourth quarter of 2020.

• Fourth quarter 2021 adjusted net income (a non-GAAP financial measure) was $151.2 million, or adjusted net income of $1.26 per diluted common share, a sequential increase from adjusted net income of $148.6 million in the third quarter of 2021, and a significant year-over-year increase from adjusted net income of $32.3 million in the fourth quarter of 2020.

• Fourth quarter 2021 adjusted earnings before interest expense, income taxes, depletion, depreciation and amortization and certain other items (“Adjusted EBITDA,” a non-GAAP financial measure) were $299.1 million, a sequential increase from $293.8 million in the third quarter of 2021, and a year-over-year increase from $150.1 million in the fourth quarter of 2020.

Oil, Natural Gas and Oil Equivalent Production

As summarized in the table below, Matador’s fourth quarter 2021 average daily oil, natural gas and total oil equivalent production were all above the Company’s expectations. The majority of the higher-than-expected production resulted from the timing of shut-in operations in the Stateline asset area associated with hydraulic fracturing operations on the 11 Voni wells. The Company did not begin hydraulic fracturing operations on these 11 wells until the second week of November, as opposed to on November 1, allowing for approximately ten additional days of full production from the Stateline asset area prior to a significant number of these wells being shut in for the 11 Voni well completions as planned.

		Production Change (%)
Production	Q4 2021 Average Daily Volume	Sequential(1)	Guidance(2)	Difference(3)	YoY(4)
Total, BOE per day	87,300	-3%	-9% to -10%	+7%	+5%
Oil, Bbl per day	49,800	-2%	-9% to -10%	+8%	+4%
Natural Gas, MMcf per day	225.2	-4%	-9% to -11%	+6%	+7%
(1) As compared to the third quarter of 2021.
(2) Production change previously projected, as provided on October 26, 2021.
(3) As compared to midpoint of guidance provided on October 26, 2021.
(4) Represents year-over-year percentage change from the fourth quarter of 2020.

Capital Expenditures Below Expectations; Drilling and Completions Costs Per Foot In-Line

• Matador incurred capital expenditures for drilling, completing and equipping wells (“D/C/E capital expenditures”) of approximately $166 million in the fourth quarter of 2021, or 18% below the Company’s estimate of $202 million for D/C/E capital expenditures during the quarter. Matador estimates that approximately $15 million of these savings were directly attributable to continued improvement in operational efficiencies, while the remainder of the savings resulted primarily from the timing of both operated and non-operated drilling and completion activities, and most of these costs are currently expected to be incurred in the first quarter of 2022.

• For full year 2021, Matador’s D/C/E capital expenditures were approximately $513 million, or about 7% below the midpoint of Matador’s updated guidance of $550 million for full year 2021 D/C/E capital expenditures, as provided on October 26, 2021. These annual cost savings were achieved despite the increasing service cost inflation experienced in the second half of 2021 and despite pulling forward the most recent 11 Voni well completions into the fourth quarter of 2021.

• Drilling and completion costs for all operated horizontal wells turned to sales in the fourth quarter of 2021 averaged approximately $738 per completed lateral foot, a sequential increase of 14% from average drilling and completion costs of approximately $650 per completed lateral foot in the third quarter of 2021 and in-line with the Company’s expectations for the fourth quarter. This increase was primarily attributable to the inflation in oilfield service costs associated with drilling and, in particular, completion operations, a trend that the Company expects to continue throughout 2022.

• For full year 2021, drilling and completion costs for all operated horizontal wells turned to sales averaged approximately $670 per completed lateral foot, a year-over-year decrease of 21% from average drilling and completion costs of $850 per completed lateral foot achieved in full year 2020.

Total Borrowings Continue to Decline

• At December 31, 2021, Matador’s leverage ratio, as defined in the Company’s reserves-based credit facility, was 1.1x, which was better than the Company’s expectations for year-end 2021. The leverage ratio of 1.1x marks Matador’s lowest leverage ratio since mid-2014. At December 31, 2021, total borrowings outstanding under Matador’s reserves-based credit facility were $100 million, a reduction of $20 million from total borrowings outstanding of $120 million at September 30, 2021.

• Matador expects to repay an additional $25 million in borrowings outstanding under the reserves-based credit facility before the end of February 2022. Total borrowings outstanding under the reserves-based credit facility at February 28, 2022 are expected to be $75 million.

Reserves-Based Credit Agreement Amended and Restated

• On November 18, 2021, Matador announced the closing of a new amended and restated credit agreement (the “Credit Agreement”). Under the Credit Agreement signed on November 18, 2021, (i) the maturity date was extended by three years to October 31, 2026, from October 31, 2023 previously; (ii) the borrowing base was increased by 50% to $1.35 billion, as compared to $900 million previously; (iii) the elected borrowing commitment was reaffirmed at $700 million; and (iv) the maximum facility amount was reaffirmed at $1.5 billion. Matador also added three new banks to its lending group under the Credit Agreement.

• Additional details regarding the new Credit Agreement were provided in the Company’s November 18, 2021 press release, and additional financial terms and covenants under the Credit Agreement were included in the Form 8-K filed with the U.S. Securities and Exchange Commission.

Credit Rating and Senior Notes Upgraded by S&P

• On January 27, 2022, as previously announced, S&P Global Ratings (“S&P”) upgraded Matador’s issuer credit rating from ‘B’ to ‘B+’ and upgraded Matador’s issue-level rating on Matador’s senior unsecured notes from ‘B+’ to ‘BB-’.

Note: All references to Matador’s net income (loss), adjusted net income (loss), 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 (loss), 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 (loss), adjusted earnings (loss) 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.

Sequential and year-over-year quarterly comparisons of selected financial and operating items are shown in the following table:

		Three Months Ended
		December 31,				September 30,				December 31,
		2021				2021				2020
Net Production Volumes:(1)
Oil (MBbl)(2)			4,578				4,669				4,419
Natural gas (Bcf)(3)			20.7				21.7				19.4
Total oil equivalent (MBOE)(4)			8,030				8,283				7,653
Average Daily Production Volumes:(1)
Oil (Bbl/d)(5)			49,756				50,747				48,028
Natural gas (MMcf/d)(6)			225.2				235.7				210.9
Total oil equivalent (BOE/d)(7)			87,288				90,033				83,183
Average Sales Prices:
Oil, without realized derivatives (per Bbl)		$	76.82			$	69.73			$	40.99
Oil, with realized derivatives (per Bbl)		$	60.96			$	58.43			$	38.59
Natural gas, without realized derivatives (per Mcf)(8)		$	7.68			$	6.27			$	2.97
Natural gas, with realized derivatives (per Mcf)		$	6.64			$	6.05			$	2.97
Revenues (millions):
Oil and natural gas revenues		$	510.8			$	461.5			$	238.7
Third-party midstream services revenues		$	19.7			$	20.5			$	15.1
Realized loss on derivatives		$	(94.2	)		$	(57.4	)		$	(10.6	)
Operating Expenses (per BOE):
Production taxes, transportation and processing		$	6.48			$	5.90			$	3.53
Lease operating		$	3.34			$	3.31			$	3.20
Plant and other midstream services operating		$	2.12			$	2.06			$	1.62
Depletion, depreciation and amortization		$	11.15			$	10.75			$	11.73
General and administrative(9)		$	3.14			$	2.97			$	2.16
Total(10)		$	26.23			$	24.99			$	22.24
Other (millions):
Net sales of purchased natural gas(11)		$	1.8			$	4.2			$	1.2
Net income (loss) (millions)(12)		$	214.8			$	203.6			$	(89.5	)
Earnings (loss) per common share (diluted)(12)		$	1.80			$	1.71			$	(0.77	)
Adjusted net income (millions)(12)(13)		$	151.2			$	148.6			$	32.3
Adjusted earnings per common share (diluted)(12)(14)		$	1.26			$	1.25			$	0.27
Adjusted EBITDA (millions)(12)(15)		$	299.1			$	293.8			$	150.1
Net cash provided by operating activities (millions)(16)		$	334.5			$	291.2			$	157.6
Adjusted free cash flow (millions)(12)(17)		$	119.3			$	147.5			$	60.7
San Mateo net income (millions)(18)		$	33.6			$	29.5			$	26.2
San Mateo adjusted EBITDA (millions)(15)(18)		$	43.6			$	40.8			$	35.4
San Mateo net cash provided by operating activities (millions)(18)		$	33.1			$	44.2			$	26.1
San Mateo adjusted free cash flow (millions)(17)(18)		$	28.9			$	8.4			$	21.4
D/C/E capital expenditures (millions)		$	165.7			$	121.1			$	63.4
Midstream capital expenditures (millions)(19)		$	6.6			$	14.7			$	7.4
(1) Production volumes and proved reserves reported in two streams: oil and natural gas, including both dry and liquids-rich natural gas.
(2) One thousand barrels of oil.
(3) One billion cubic feet of natural gas.
(4) One thousand barrels of oil equivalent, estimated using a conversion ratio of one barrel of oil per six thousand cubic feet of natural gas.
(5) Barrels of oil per day.
(6) Millions of cubic feet of natural gas per day.
(7) Barrels of oil equivalent per day, estimated using a conversion ratio of one barrel of oil per six thousand cubic feet of natural gas.
(8) Per thousand cubic feet of natural gas.
(9) Includes approximately $0.43, $0.36 and $0.42 per BOE of non-cash, stock-based compensation expense in the fourth quarter of 2021, the third quarter of 2021 and the fourth quarter of 2020, respectively.
(10) Total does not include the impact of full-cost ceiling impairment charges, purchased natural gas or immaterial accretion expenses.
(11) Net sales of purchased natural gas reflect those natural gas purchase transactions that the Company periodically enters into with third parties whereby the Company purchases natural gas and (i) subsequently sells the natural gas to other purchasers or (ii) processes the natural gas at San Mateo’s cryogenic natural gas processing plant in Eddy County, New Mexico (the “Black River Processing Plant”) and subsequently sells the residue natural gas and natural gas liquids (“NGL”) to other purchasers. Such amounts reflect revenues from sales of purchased natural gas of $31.8 million, $38.8 million and $3.9 million less expenses of $30.1 million, $34.6 million and $2.6 million in the fourth quarter of 2021, the third quarter of 2021 and the fourth quarter of 2020, respectively.
(12) Attributable to Matador Resources Company shareholders.
(13) Adjusted net income is a non-GAAP financial measure. For a definition of adjusted net income and a reconciliation of adjusted net income (non-GAAP) to net income (loss) (GAAP), please see “Supplemental Non-GAAP Financial Measures.”
(14) Adjusted earnings per diluted common share is a non-GAAP financial measure. For a definition of adjusted earnings per diluted common share and a reconciliation of adjusted earnings per diluted common share (non-GAAP) to earnings (loss) per diluted common share (GAAP), please see “Supplemental Non-GAAP Financial Measures.”
(15) Adjusted EBITDA is a non-GAAP financial measure. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA (non-GAAP) to net income (loss) (GAAP) and net cash provided by operating activities (GAAP), please see “Supplemental Non-GAAP Financial Measures.”
(16) As reported for each period on a consolidated basis, including 100% of San Mateo’s net cash provided by operating activities.
(17) Adjusted free cash flow is a non-GAAP financial measure. For a definition of adjusted free cash flow and a reconciliation of adjusted free cash flow (non-GAAP) to net cash provided by operating activities (GAAP), please see “Supplemental Non-GAAP Financial Measures.”
(18) Represents 100% of San Mateo’s net income, adjusted EBITDA, net cash provided by operating activities or adjusted free cash flow for each period reported.
(19) Includes Matador’s 51% share of San Mateo’s capital expenditures plus 100% of other immaterial midstream capital expenditures not associated with San Mateo.

Recent Acquisitions and Divestitures

Acquisitions – Delaware Basin, Lea and Eddy Counties, New Mexico and Loving County, Texas

During the second half of 2021 and through February 22, 2022, Matador acquired both producing and non-producing properties in the Delaware Basin in Lea and Eddy Counties, New Mexico and Loving County, Texas as a result of both asset purchases and organic leasing activities for a total consideration of approximately $242 million, inclusive of customary purchase price adjustments, and did so without increasing total debt outstanding or the leverage ratio at year-end 2021. The majority of these properties are located between the Company’s Mallon and Rodney Robinson leasehold positions in Lea County, New Mexico, and a large portion of the acreage acquired includes “bolt-on” positions to the Company’s existing acreage in the western portion of its Ranger asset area. These properties also include a variety of smaller tracts acquired in several of the Company’s Delaware Basin asset areas in both New Mexico and Texas.

Approximately $217 million associated with these transactions was paid by Matador during the third and fourth quarters of 2021, which is reflected in the Company’s full year 2021 cash flow statements provided with this earnings release. The Company paid an additional $25 million upon closing the remaining properties associated with these transactions during January and February 2022. Matador has funded these acquisitions using free cash flow from its operations generated during the second half of 2021 and the first quarter of 2022.

Additional details regarding the acquired properties include the following:

• Approximately 3,750 BOE per day at the time of the various acquisitions, including flush production from three new wells turned to sales in November 2021, and for which Matador realized only about 50,000 BOE as part of its fourth quarter 2021 total production, or less than 1% of its fourth quarter 2021 total production, as a result of acquiring these properties late in the fourth quarter;

• Approximately 22,400 gross (12,700 net) acres acquired, including a mix of fee, state and federal acreage;

• Approximately 206 gross (128.6 net) locations identified for future drilling, including prospective targets throughout the Wolfcamp, Bone Spring and Avalon intervals; and

• Production characterized by higher oil cut wells (70% or greater) and lower water production (water-oil ratios typically three-to-one or less).

Matador expects to add approximately 16.6 million BOE, including 12.1 million barrels of oil and 26.5 billion cubic feet of natural gas, associated with these properties to its estimated total proved oil and natural gas reserves, a portion of which was included in the Company’s proved oil and natural gas reserves at December 31, 2021 and the remainder of which will be included in the Company’s proved reserves as of March 31, 2022. The Standardized Measure and PV-10 (present value discounted at 10%, a non-GAAP financial measure) of these proved oil and natural gas reserves are approximately $186.

Contacts

Mac Schmitz

Capital Markets Coordinator

(972) 371-5225

investors@matadorresources.com

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