DALLAS–(BUSINESS WIRE)–Matador Resources Company (NYSE: MTDR) (“Matador” or the “Company”) today reported financial and operating results for the second quarter of 2018. A short slide presentation summarizing the highlights of Matador’s second quarter 2018 earnings release is also included on the Company’s website at www.matadorresources.com on the Presentations & Webcasts page under the Investors tab.
Second Quarter 2018 Financial and Operational Highlights
- Second quarter 2018 average daily oil equivalent production increased 17% sequentially to a record quarterly high for the Company of 52,900 barrels of oil equivalent (“BOE”) per day (56% oil) as compared to the first quarter of 2018. Average daily oil production increased 12% sequentially to 29,700 barrels per day and average daily natural gas production increased 23% sequentially to 139.2 million cubic feet of natural gas per day, each as compared to the first quarter of 2018.
- Second quarter 2018 Delaware Basin average daily oil equivalent production increased 25% sequentially to a record quarterly high for the Company of 46,500 BOE per day (59% oil) as compared to the first quarter of 2018. Delaware Basin average daily oil production increased 17% sequentially to 27,400 barrels per day and Delaware Basin average daily natural gas production increased 38% sequentially to 114.6 million cubic feet per day, each as compared to the first quarter of 2018.
- Second quarter 2018 net income (GAAP basis) was $59.8 million, or $0.53 per diluted common share, essentially unchanged from $59.9 million in the first quarter of 2018, and a year-over-year increase of 110% from $28.5 million in the second quarter of 2017.
- Second quarter 2018 adjusted net income (a non-GAAP financial measure) was $46.1 million, or $0.41 per diluted common share, a sequential increase of 18% from $39.1 million in the first quarter of 2018, and a year-over-year increase of 321% from $10.9 million in the second quarter of 2017.
- Second quarter 2018 adjusted earnings before interest expense, income taxes, depletion, depreciation and amortization and certain other items (“Adjusted EBITDA,” a non-GAAP financial measure) were $137.3 million, a sequential increase of 17% from $117.3 million in the first quarter of 2018, and a year-over-year increase of 89% from $72.7 million in the second quarter of 2017.
- Matador’s estimated total proved oil and natural gas reserves were a record 170.2 million BOE at June 30, 2018, consisting of 95.4 million barrels of oil and 448.2 billion cubic feet (“Bcf”) of natural gas, with a record Standardized Measure of $1.6 billion (GAAP basis) and a record PV-10 (a non-GAAP financial measure) of $1.8 billion. Estimated total proved oil and natural gas reserves increased 11% from 152.8 million BOE at December 31, 2017 and increased 27% year-over-year from 134.4 million BOE at June 30, 2017.
- In mid-June 2018, San Mateo Midstream, LLC (“San Mateo”), the Company’s midstream joint venture, entered into its most significant third-party agreement to date—a long-term agreement with a significant third-party producer in Eddy County, New Mexico for the gathering and disposal of such producer’s salt water (please see Matador’s June 14, 2018 press release for additional information).
- The Bill Alexander State Com #111H (Bill Alexander #111H) well, Matador’s second First Bone Spring test in its Antelope Ridge asset area, flowed 1,808 BOE per day (79% oil), or 407 BOE per day per thousand feet of completed lateral, during a 24-hour initial potential test. The Bill Alexander #111H well was a strong follow-up test of the First Bone Spring formation north of Matador’s initial First Bone Spring completion in the Antelope Ridge area, the Marlan Downey 9-23S-35E AR #111H well, which tested 1,491 BOE per day (82% oil) and has produced approximately 111,000 BOE in its first four months of production.
- As initially reported on June 4, 2018, the SST 6 State #123H and #124H wells, Matador’s first two Second Bone Spring wells drilled on its SST leasehold north of the Stebbins acreage in the Arrowhead asset area, tested 2,056 BOE per day (85% oil) and 1,845 BOE per day (86% oil), respectively, or approximately 488 and 438 BOE per day per thousand feet of completed lateral, respectively, during 24-hour initial potential tests. Matador continues to be very pleased and encouraged by the Second and Third Bone Spring results it has achieved in its Arrowhead asset area and on the Stebbins and SST leaseholds in particular.
Note: All references to net income, adjusted net income and Adjusted EBITDA reported throughout this earnings release are those values attributable to Matador Resources Company shareholders after giving effect to any net income, net loss or Adjusted EBITDA, respectively, attributable to third-party non-controlling interests, including in San Mateo. For a definition of adjusted net income, adjusted earnings per diluted common share, Adjusted EBITDA and PV-10 and reconciliations of such non-GAAP financial metrics to their comparable GAAP metrics, please see “Supplemental Non-GAAP Financial Measures” below.
Full-Year 2018 Updated Guidance
As a result of the Company’s production and financial performance exceeding its expectations for the first two quarters of 2018, effective August 1, 2018, Matador increased its full-year 2018 guidance estimates as provided in the table below.
|Total Oil Production||7.9 million Bbl||9.7 to 10.1 million Bbl||10.6 to 10.9 million Bbl||+ 37%|
|Total Natural Gas Production||38.2 Bcf||41.0 to 43.0 Bcf||46.0 to 47.0 Bcf||+ 22%|
|Total Oil Equivalent Production||14.2 million BOE||16.5 to 17.3 million BOE||18.3 to 18.7 million BOE||+ 30%|
|Adjusted EBITDA(4)||$336 million||$425 to $455 million||$495 to $515 million||+ 50%|
|D/C/E CapEx(5)||$493 million||$530 to $570 million||$620 to $650 million||+ 28%|
|Midstream CapEx(6)||$60 million||$70 to $90 million||$70 to $90 million||+ 33%|
|(1)||As of and as provided on February 21, 2018.|
|(2)||As of and as updated on August 1, 2018.|
|(3)||Represents percentage change from 2017 actual results to the midpoint of updated 2018 guidance as provided on August 1, 2018.|
|(4)||Adjusted EBITDA is a non-GAAP financial measure. In the 2018 updated guidance, Adjusted EBITDA was estimated using actual results for the first and second quarters of 2018 and strip prices for oil and natural gas as of mid-July 2018. The average unhedged realized oil price used to estimate Adjusted EBITDA for the period July through December 2018 was approximately $53.00 per barrel, which represents an average West Texas Intermediate (WTI) oil price of approximately $68.00 per barrel less an estimated Midland-Cushing price differential, including trucking costs, of approximately $15.00 per barrel. The average unhedged natural gas price used to estimate Adjusted EBITDA for the period July through December 2018 was $3.29 per Mcf, which represents an average Henry Hub natural gas price of $2.79 per Mcf, plus an estimated uplift of approximately $0.50 per Mcf attributable to natural gas liquids (NGL) revenues, which are included in the Company’s estimated natural gas price.|
|(5)||Capital expenditures associated with drilling, completing and equipping wells.|
|(6)||Reflects Matador’s 51% share of 2018 estimated capital expenditures for San Mateo.|
Drilling Activity Guidance
The full-year 2018 updated guidance estimates presented in the table above assume that Matador will continue to operate six drilling rigs in the Delaware Basin throughout the third and fourth quarters of 2018. At August 1, 2018, Matador continues to evaluate adding a seventh operated drilling rig during the fourth quarter of 2018, but the Company has not made the decision to do so at this time. Should Matador elect to add a seventh drilling rig during the fourth quarter of 2018, the Company anticipates this additional rig will have no impact on its estimated 2018 oil and natural gas production and only a minor impact on its anticipated capital expenditures for the remainder of 2018.
At August 1, 2018, Matador expects to complete and turn to sales a total of 151 gross (74.1 net) operated and non-operated wells during 2018, including 82 gross (66.5 net) operated wells and 69 gross (7.6 net) non-operated wells, as shown in the tables below. These totals include 23 gross (6.1 net) additional wells as compared to Matador’s original guidance for 2018 as provided on February 21, 2018, which estimated that 80 gross (62.9 net) operated and 48 gross (5.1 net) non-operated wells would be completed and turned to sales in 2018.
|2018 Estimated Wells Turned to Sales – Original Guidance||2018 Estimated Wells Turned to Sales – Updated Guidance|
|As of and as provided on February 21, 2018.||As of and as updated on August 1, 2018.|
The additional 3.6 net operated wells anticipated for full-year 2018 are attributable to a slightly higher drilling and completions pace, as well as additional working interests acquired or anticipated to be acquired in certain operated wells during the course of the year. The additional 2.5 net non-operated wells anticipated for full-year 2018 are attributable to a significantly higher-than-expected number of non-operated well proposals received by Matador thus far in 2018. A number of the non-operated well completions in 2018 are extended-length laterals of 7,500 to 10,000 feet, with estimated drilling, completion and equipping costs of $10 to $13 million.
Overall, at August 1, 2018, Matador estimates that its full-year 2018 total production should increase by approximately 30% year-over-year to 18.5 million BOE, including an approximate 37% year-over-year increase in oil production to 10.75 million barrels, both at the midpoint of the Company’s updated guidance, due to the drilling and completion of additional operated and non-operated wells and better-than-expected performance in the first half of 2018. Matador also estimates that its Adjusted EBITDA should increase approximately 50% year-over-year to $505 million at the midpoint of updated guidance, which is an increase of $65 million from the midpoint of Matador’s original guidance as provided on February 21, 2018. Finally, largely attributable to the increased number of operated and non-operated wells to be completed and turned to sales for full-year 2018, Matador estimates that its capital expenditures for drilling, completing and equipping wells should be between $620 and $650 million, an increase of $85 million at the midpoint of updated guidance, with such increase being substantially funded by the additional cash flows Matador now projects for full-year 2018. At August 1, 2018, Matador’s estimated 2018 capital expenditures for midstream activities remain unchanged at $70 to $90 million, which represents 51% of San Mateo’s total estimated capital expenditures for 2018.
Given its strong financial position, including $143.5 million in cash and restricted cash at June 30, 2018, no outstanding borrowings under its credit facility at June 30 and August 1, 2018 and its anticipated increase in cash flows for full-year 2018, Matador believes that it has sufficient liquidity to execute its drilling and completion and midstream activities for the remainder of 2018 and into 2019.
Third Quarter 2018 Production Estimates
Matador estimates its average daily oil production will increase approximately 3% in the third quarter as compared to the second quarter of 2018, and its average daily natural gas production will decrease approximately 7% in the third quarter as compared to the second quarter of 2018. For the reasons described more fully in the Production Results section of this earnings release, Matador anticipates that its average daily natural gas production for 2018 most likely reached its peak during the second quarter. Even so, Matador’s anticipated third-quarter 2018 average daily natural gas production should still be an increase of approximately 15% as compared to the first quarter of 2018. In addition, of the remaining 41 gross operated wells estimated to be completed and turned to sales in the second half of 2018, Matador expects 15 and 26 gross wells to be completed and turned to sales in the third and fourth quarters of 2018, respectively, primarily due to the projected cadence of drilling and completion operations during the second half of 2018.
Joseph Wm. Foran, Matador’s Chairman and CEO, commented, “As highlighted throughout this earnings release, the second quarter of 2018 was an outstanding quarter for Matador—both operationally and financially—and was the overall best quarter in the Company’s history. (In fact, the first and second quarters of 2018 were the two best quarters in the Company’s history.) As a result of these better-than-expected operating and financial results for the first half of 2018, and the fact we are ahead of our expected pace for turning wells to sales, we increased our production, Adjusted EBITDA and capital expenditures guidance for full-year 2018 effective August 1, 2018, as stated above.
“During the second quarter, our midstream team, San Mateo, entered into a significant long-term agreement with a third-party producer in Eddy County, New Mexico for the gathering and disposal of salt water. This agreement—along with others—keeps San Mateo on track for achieving the high end of its financial targets for 2018, including meeting an annualized Adjusted EBITDA approaching $100 million in the fourth quarter of 2018. On the marketing front, Matador also executed a firm sales agreement with an affiliate of Kinder Morgan, Inc., securing firm natural gas sales for a significant portion of our natural gas volumes based on Houston Ship Channel pricing beginning on the in-service date of the Gulf Coast Express Pipeline Project, which is expected to be operational in October 2019. Despite recent concerns over oil and natural gas takeaway from the Delaware Basin, we have not experienced any pipeline-related interruptions to our oil, natural gas and NGL production. We remain confident that the steps we have taken and the agreements we have put in place thus far, as summarized in more detail in this earnings release and in our prior press release on June 4, 2018, should continue to provide flow assurance for our oil, natural gas and NGL production going forward.
“Finally, our land team continues to add to and block up our leasehold and minerals position in the Delaware Basin, primarily by making opportunistic acquisitions at attractive prices and by executing strategic acreage trades with other operators. From January 1 through August 1, 2018, Matador acquired, or had under contract, approximately 16,000 net acres of leasehold and minerals in the Delaware Basin, including approximately 3,400 net mineral acres located in and around our existing asset areas. We expect to continue building our leasehold and mineral position in the Delaware Basin ‘one brick at a time,’ which is a low cost approach we believe has served Matador and our shareholders well over the past several years.”
Sequential and year-over-year quarterly comparisons of selected financial and operating items are shown in the following table:
|Three Months Ended|
|Net Production Volumes:(1)|
|Natural gas (Bcf)(3)||12.7||10.2||9.6|
|Total oil equivalent (MBOE)(4)||4,817||4,075||3,360|
|Average Daily Production Volumes:(1)|
|Natural gas (MMcf/d)(5)||139.2||112.9||105.0|
|Total oil equivalent (BOE/d)(6)||52,937||45,273||36,922|
|Average Sales Prices:|
|Oil, without realized derivatives (per Bbl)||$||61.44||$||62.20||$||46.01|
|Oil, with realized derivatives (per Bbl)||$||60.52||$||60.40||$||46.34|
|Natural gas, without realized derivatives (per Mcf)||$||3.38||$||3.33||$||3.40|
|Natural gas, with realized derivatives (per Mcf)||$||3.38||$||3.33||$||3.39|
|Oil and natural gas revenues||$||209.0||$||182.0||$||113.8|
|Third-party midstream services revenues||$||3.4||$||3.1||$||2.1|
|Realized (loss) gain on derivatives||$||(2.5||)||$||(4.3||)||$||0.6|
|Operating Expenses (per BOE):|
|Production taxes, transportation and processing||$||4.17||$||4.37||$||3.83|
|Plant and other midstream services operating||$||1.18||$||1.04||$||0.88|
|Depletion, depreciation and amortization||$||13.87||$||13.59||$||12.28|
|General and administrative(7)||$||4.02||$||4.40||$||5.11|
|Net income (millions)(9)||$||59.8||$||59.9||$||28.5|
|Earnings per common share (diluted)(9)||$||0.53||$||0.55||$||0.28|
|Adjusted net income (millions)(9)(10)||$||46.1||$||39.1||$||10.9|
|Adjusted earnings per common share (diluted)(9)(11)||$||0.41||$||0.36||$||0.11|
|Adjusted EBITDA (millions)(9)(12)||$||137.3||$||117.3||$||72.7|
|(1)||Production volumes 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)||Millions of cubic feet of natural gas per day.|
|(6)||Barrels of oil equivalent per day, estimated using a conversion ratio of one barrel of oil per six thousand cubic feet of natural gas.|
|(7)||Includes approximately $0.99, $1.03 and $2.09 per BOE of non-cash, stock-based compensation expense in the second quarter of 2018, the first quarter of 2018 and the second quarter of 2017, respectively.|
|(8)||Total does not include the impact of full-cost ceiling impairment charges or immaterial accretion expenses.|
|(9)||Attributable to Matador Resources Company shareholders.|
|(10)||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 (GAAP), please see “Supplemental Non-GAAP Financial Measures.”|
|(11)||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 per diluted common share (GAAP), please see “Supplemental Non-GAAP Financial Measures.”|
|(12)||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 (GAAP) and net cash provided by operating activities (GAAP), please see “Supplemental Non-GAAP Financial Measures.”|
Significant Well Results
The following table highlights the 24-hour initial potential (“IP”) test results from certain of Matador’s operated wells completed and turned to sales in the Delaware Basin during the second quarter of 2018. Matador continues to be pleased with its well results across all of its acreage position in the Delaware Basin and particularly with a number of better-than-expected well results during the second quarter of 2018.
|Asset Area/Well Name||Interval||(BOE/d)||(%)||Comments|
|Antelope Ridge, Lea County, NM|
|Bill Alexander State Com #111H||First Bone Spring||1,808||79||%||Second encouraging First Bone Spring test in Antelope Ridge.|
|Arrowhead, Eddy County, NM|
|SST 6 State #123H||Second Bone Spring||2,056||85||%||First two Second Bone Spring wells drilled on SST leasehold north of Stebbins acreage. Both wells flowed at approximately 500 psi during IP tests.|
|SST 6 State #124H||Second Bone Spring||1,845||86||%|
|Rustler Breaks, Eddy County, NM|
|Jimmy Kone 05-24S-28E RB #215H||Wolfcamp A-Lower||1,546||78||%||Another strong Wolfcamp A-Lower test in Rustler Breaks.|
|Joe Coleman 13-23S-27E RB #201H||Wolfcamp A-XY||1,702||80||%||Consistent Wolfcamp A-XY well results continue in northwest Rustler Breaks.|
|Wolf, Loving County, TX|
|Wolf 80-TTT-B33 WF #205H||Wolfcamp A-XY||2,153||57||%||Strong 24-hour IP tests from Wolfcamp A-XY wells completed in the south-central portion of the Wolf asset area. Both wells flowed at approximately 3,200 psi during IP tests.|
|Wolf 80-TTT-B33 WF #207H||Wolfcamp A-XY||2,104||59||%|
Twin Lakes Asset Area, Lea County, New Mexico
Matador has recently completed drilling its second test of the Wolfcamp D interval on the western portion of its Twin Lakes asset area. This well, the Northeast Kemnitz #233H well, was drilled to a similar Wolfcamp D target as that tested by Cimarex Energy Co. on its recent State LF 32 5 #2H well, which tested 977 BOE per day (84% oil) on pump. Matador should begin completing the Northeast Kemnitz #233H well in early September and expects to report initial test results from that well as part of its third quarter 2018 earnings release.
Overall, industry activity continues to increase in the Twin Lakes asset area. At August 1, 2018, Matador was also participating with Continental Resources, Inc. in its Reed 24 25 B State #1H (Reed State #1H) well located approximately four miles northwest of Matador’s D. Culbertson #234H well. The Reed State #1H well is planned as a two-mile lateral testing a shallower carbonate target in the Wolfcamp B interval, as compared to the deeper Wolfcamp D targets tested in the Twin Lakes asset area thus far by Matador and Cimarex Energy Co. At August 1, 2018, drilling operations were in progress on the Reed State #1H well. Matador owns an approximate 13% working interest in this well.
Midstream and Marketing Highlights
- As mentioned earlier in this release, in mid-June 2018, San Mateo entered into a significant long-term agreement with a third-party producer in Eddy County, New Mexico relating to the gathering and disposal of such producer’s salt water. The agreement includes the dedication of over 65 wells, which are located within five miles of San Mateo’s existing salt water gathering system in Eddy County, New Mexico. In addition, San Mateo commissioned the drilling of its fourth and fifth commercial salt water disposal wells in Eddy County, New Mexico, both of which were in progress at August 1, 2018. Upon completion of these additional salt water disposal wells, San Mateo expects to have total designed salt water disposal capacity in excess of 230,000 barrels per day in Eddy County, New Mexico and Loving County, Texas (please see San Mateo’s June 14, 2018 press release for additional information).
- In July 2018, Matador entered into an agreement with another Delaware Basin midstream company to purchase such company’s natural gas on an interruptible basis, and such natural gas is expected to be processed at San Mateo’s Black River cryogenic natural gas processing plant in Eddy County, New Mexico (the “Black River Processing Plant”). When this agreement and the related interconnects become fully operable later in 2018, San Mateo anticipates that this agreement may result in 20,000 to 50,000 million British Thermal Units (“MMBtu”) per day (or possibly more at certain times) in additional natural gas volumes being processed at the Black River Processing Plant.
- Also as mentioned earlier in this release, in May 2018, Matador executed a firm sales agreement with an affiliate of Kinder Morgan, Inc. beginning on the in-service date of the Gulf Coast Express Pipeline Project (the “GCX Project”). This agreement secures firm natural gas sales for an average of approximately 110,000 to 115,000 MMBtu per day at a price based upon Houston Ship Channel pricing. The GCX Project is expected to be operational in October 2019 and is expected to transport natural gas from the Permian Basin to Agua Dulce, Texas, near the Texas Gulf Coast.
Matador Resources Company
Mac Schmitz, 972-371-5225
Capital Markets Coordinator