DALLAS–(BUSINESS WIRE)–Matador Resources Company (NYSE: MTDR) (“Matador” or the “Company”) today reported financial and operating results for the third quarter of 2018. A short slide presentation summarizing the highlights of Matador’s third quarter 2018 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.
Third Quarter 2018 Financial and Operational Highlights
- Third quarter 2018 average daily oil equivalent production increased 3% sequentially to a record quarterly high for the Company of 54,600 barrels of oil equivalent (“BOE”) per day (59% oil) as compared to the second quarter of 2018. Average daily oil production increased 9% sequentially to 32,300 barrels per day and average daily natural gas production decreased 4% sequentially to 133.8 million cubic feet per day, each as compared to the second quarter of 2018.
- Third quarter 2018 Delaware Basin average daily oil equivalent production increased 3% sequentially to a record quarterly high for the Company of 47,800 BOE per day (63% oil) as compared to the second quarter of 2018. Delaware Basin average daily oil production increased 9% sequentially to 29,900 barrels per day and Delaware Basin average daily natural gas production decreased 6% sequentially to 107.4 million cubic feet per day, each as compared to the second quarter of 2018.
- Third quarter 2018 net income (GAAP basis) was $17.8 million, or $0.15 per diluted common share, a decrease of $42.0 million, or 70%, from the second quarter of 2018, and a year-over-year increase of 18% from $15.0 million in the third quarter of 2017. On a GAAP basis, third quarter 2018 net income was negatively impacted by charges of $52.6 million associated with a non-cash unrealized loss on derivatives of $21.3 million and a prepayment premium of $31.2 million resulting from the redemption and refinancing of the Company’s senior unsecured notes during the third quarter.
- Third quarter 2018 adjusted net income (a non-GAAP financial measure) was $55.7 million, or $0.48 per diluted common share, a sequential increase of 21% from $46.1 million in the second quarter of 2018, and a year-over-year increase of 213% from $17.8 million in the third quarter of 2017.
- Third 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 $155.4 million, a sequential increase of 13% from $137.3 million in the second quarter of 2018, and a year-over-year increase of 83% from $84.8 million in the third quarter of 2017.
- In September 2018, Matador successfully acquired approximately 8,400 gross/net leasehold acres for approximately $387 million, or a weighted average cost of approximately $46,000 per net acre, in Lea and Eddy Counties, New Mexico in the Bureau of Land Management New Mexico Oil and Gas Lease Sale (the “BLM Acquisition” or the “BLM Lease Sale”). The Company believes that portions of the BLM Acquisition include some of the most prospective acreage in the Delaware Basin, with the potential to develop as many as seven to nine different formations in certain tracts (please see Matador’s September 12, 2018 press release for additional information).
- In August 2018, Matador closed a private offering of $750 million of 5.875% senior unsecured notes due 2026. A portion of the net proceeds were used to purchase and redeem the entire $575 million aggregate principal amount of its 6.875% senior unsecured notes due 2023. In early October 2018, Matador closed a private offering of an additional $300 million of its 5.875% senior unsecured notes due 2026. The net proceeds were used to repay a portion of the borrowings under Matador’s revolving credit facility that were incurred to finance the BLM Acquisition.
- In mid-October 2018, a subsidiary of San Mateo Midstream, LLC (“San Mateo”), the Company’s midstream joint venture, entered into a long-term agreement with a producer in Eddy County, New Mexico for the gathering and processing of such producer’s natural gas. As a result of this agreement, along with others entered into by San Mateo with Matador and other customers, San Mateo has entered into contracts to provide firm gathering and processing for over 200 million cubic feet of natural gas per day, or over 80% of the designed inlet capacity of 260 million cubic feet of natural gas per day at its Black River cryogenic natural gas processing plant (the “Black River Processing Plant”) in the Rustler Breaks asset area in Eddy County, New Mexico (please see Matador’s October 16, 2018 press release for additional information).
- In late October 2018, Matador and its lenders amended the Company’s revolving credit agreement to, among other items, (i) increase the maximum facility size from $500 million to $1.5 billion, (ii) increase the borrowing base from $725 million to $850 million, (iii) increase the elected borrowing commitment from $400 million to $500 million, (iv) extend the maturity of the credit agreement from October 2020 to October 2023 and (v) reduce borrowing rates by 0.25% per annum.
- The Strong 14-24S-33E AR #214H (Strong #214H) well (turned to sales early in October 2018), Matador’s second Wolfcamp A-Lower test in its Antelope Ridge asset area, flowed 3,670 BOE/d (77% oil), or 760 BOE per day per thousand feet of completed lateral, during a 24-hour initial potential (“IP”) test. The Strong #214H well was Matador’s best 24-hour IP test in the Delaware Basin to date and was a successful follow-up to Matador’s initial Wolfcamp A-Lower well in the Antelope Ridge asset area, the Leo Thorsness 13-24S-33E AR #211H (Leo Thorsness #211H) well, which flowed 2,906 BOE/d (72% oil) during a 24-hour IP test. The Leo Thorsness #211H well has produced approximately 250,000 BOE (73% oil) in its first seven months of production.
- The Irvin Wall State Com #131H well, Matador’s initial Third Bone Spring test in its Antelope Ridge asset area, flowed 2,343 BOE/d (81% oil), or 511 BOE per day per thousand feet of completed lateral, during a 24-hour IP test. This initial test of the Third Bone Spring marks the fourth successful completion target for Matador in the Antelope Ridge asset area, including the First Bone Spring, the Wolfcamp A-XY and the Wolfcamp A-Lower.
- The David Edelstein State Com #203H (Edelstein #203H) well, Matador’s first operated two-mile horizontal well in the Delaware Basin, a Wolfcamp A-XY completion in its Rustler Breaks asset area, flowed 2,378 BOE per day (77% oil), or 247 BOE per day per thousand feet of completed lateral, during a 24-hour IP test. The Edelstein #203H well produced approximately 140,000 BOE (76% oil) in its first three months of production (approximately 1,550 BOE per day). The well continues to clean up and has exhibited a shallower production decline than observed in most of Matador’s one-mile lateral completions in the Rustler Breaks asset area.
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 and Adjusted EBITDA and reconciliations of such non-GAAP financial metrics to their comparable GAAP metrics, please see “Supplemental Non-GAAP Financial Measures” below.
Full-Year 2018 Guidance Updated
As a result of the Company’s production and financial performance exceeding its expectations for the third quarter of 2018, effective October 31, 2018, Matador again increased its full-year 2018 guidance estimates as provided in the table below. Matador’s updated production guidance represents an increase of 12% at the midpoint of the range for both oil and natural gas production above its original 2018 guidance as provided on February 21, 2018. The Company’s updated Adjusted EBITDA guidance reflects an increase of 24% from its original 2018 guidance. Matador increased its estimated capital expenditures for drilling, completing and equipping (“D/C/E”) wells for 2018 on October 1, 2018 by $25 to $30 million, or 4%, with its announcement of a seventh operated drilling rig being deployed in South Texas to drill up to 10 wells, primarily in the Eagle Ford shale. At October 31, 2018, Matador made no further adjustments to its estimated D/C/E capital expenditures or to its estimated midstream capital expenditures for the remainder of 2018.
August 1, 2018
October 31, 2018
|Total Oil Production||7.9 million Bbl||10.6 to 10.9 million Bbl||11.0 to 11.1 million Bbl||+ 41%|
|Total Natural Gas Production||38.2 Bcf||46.0 to 47.0 Bcf||47.0 to 47.4 Bcf||+ 24%|
|Total Oil Equivalent Production||14.2 million BOE||18.3 to 18.7 million BOE||18.8 to 19.0 million BOE||+ 33%|
|Adjusted EBITDA(4)||$336 million||$495 to $515 million||$535 to $555 million||+ 62%|
|D/C/E CapEx(5)||$493 million||$620 to $650 million||$645 to $680 million||+ 34%|
|Midstream CapEx(6)||$60 million||$70 to $90 million||$70 to $90 million||+ 33%|
(1) As of August 1, 2018.
(2) As of October 31, 2018.
(3) Represents percentage change from 2017 actual results to the midpoint of updated 2018 guidance as of October 31, 2018.
(4) Adjusted EBITDA is a non-GAAP financial measure. In the October 31, 2018 updated guidance, Adjusted EBITDA was estimated using actual results for the first, second and third quarters of 2018 and strip prices for oil and natural gas as of late October 2018. The average unhedged realized oil price used to estimate Adjusted EBITDA for the period October through December 2018 was approximately $58.00 per barrel, which represents an average West Texas Intermediate (WTI) oil price of approximately $69.00 per barrel less an estimated weighted average price differential, including trucking costs, of approximately $11.00 per barrel. The average unhedged natural gas price used to estimate Adjusted EBITDA for the period October through December 2018 was $3.38 per Mcf, which represents an average Henry Hub natural gas price of $3.21 per Mcf, plus an estimated uplift of approximately $0.17 per Mcf attributable to natural gas liquids (NGL) revenues, which are included in the Company’s average unhedged realized natural gas price.
(5) Capital expenditures associated with drilling, completing and equipping wells.
(6) Primarily reflects Matador’s 51% share of 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 and one drilling rig in South Texas in the fourth quarter of 2018.
Matador remains on its estimated schedule for wells to be completed and turned to sales in 2018 as updated in its second quarter earnings release on August 1, 2018, including the addition of three gross (3.0 net) operated Eagle Ford shale wells expected to be completed and turned to sales late in the fourth quarter (which will have essentially no impact on Matador’s fourth quarter and full-year 2018 production). At October 31, 2018, Matador now expects to complete and turn to sales 154 gross (77.3 net) operated and non-operated wells during 2018, including 82 gross (66.9 net) operated wells in the Delaware Basin, three gross (3.0 net) operated Eagle Ford shale wells in South Texas and 69 gross (7.4 net) non-operated wells, all but a few of which are in the Delaware Basin.
At October 31, 2018, Matador estimates that its full-year 2018 total oil equivalent production should increase by approximately 33% year-over-year to 18.9 million BOE, including an approximate 41% year-over-year increase in oil production to 11.05 million barrels (both percentages based on the midpoint of the Company’s updated guidance) due to better-than-expected performance in the third quarter of 2018. Matador estimates that its oil and natural gas production in the fourth quarter of 2018 will be relatively flat as compared to the third quarter of 2018. The Company expects to have a number of wells shut in during the fourth quarter as nearby offset wells are completed.
Matador also estimates that its Adjusted EBITDA should increase approximately 62% year-over-year to $545 million at the midpoint of the Company’s updated guidance, which is an increase of $40 million from the midpoint of Matador’s guidance as provided on August 1, 2018 and an increase of $105 million from the midpoint of Matador’s original 2018 guidance as provided on February 21, 2018.
Given its strong financial position, including $472 million of available borrowing capacity at October 31, 2018 under its recently amended credit facility and its anticipated cash flows, Matador believes that it has sufficient liquidity to execute its drilling and completion and midstream activities for the remainder of 2018 and for all of 2019.
Joseph Wm. Foran, Matador’s Chairman and CEO, commented, “We are pleased to report another outstanding and record quarter for Matador, as third quarter 2018 results exceeded our initial projections. Notably, our teams delivered strong well results across each of our asset areas in the Delaware Basin during the third quarter, and we continued to increase our existing high quality leasehold and mineral position in the Delaware Basin, particularly through our successful acquisition of approximately 8,400 gross and net leasehold acres in the September 2018 BLM Lease Sale in what we believe to be some of the most prospective areas of the Delaware Basin. As a result of these better-than-expected operating and financial results, we have again increased our production and Adjusted EBITDA guidance for full-year 2018 effective October 31, 2018, as noted in this press release.
“Significantly, in early October 2018, San Mateo entered into another long-term agreement with a large third-party producer in Eddy County, New Mexico for the gathering and processing of natural gas, and San Mateo has already begun gathering and processing natural gas under this new contract. This agreement, the water disposal agreement announced with another significant Eddy County producer late in the second quarter and the oil gathering and transportation agreement signed with Plains earlier in the year are all significant commercial accomplishments for the San Mateo team in 2018 and put the midstream business on solid footing for future growth in the years to come.
“It appears we will finish 2018 on a strong note and we look forward to the opportunities that lie ahead for Matador in 2019 and beyond. We believe our best days are still to come and that our recent operational, midstream and financial accomplishments have placed Matador in an excellent position for continued strong performance in the months and years ahead.”
Sequential and year-over-year quarterly comparisons of selected financial and operating items are shown in the following table:
|Three Months Ended|
|September 30, 2018||June 30, 2018||September 30, 2017|
|Net Production Volumes:(1)|
|Natural gas (Bcf)(3)||12.3||12.7||10.2|
|Total oil equivalent (MBOE)(4)||5,025||4,817||3,860|
|Average Daily Production Volumes:(1)|
|Natural gas (MMcf/d)(5)||133.8||139.2||110.5|
|Total oil equivalent (BOE/d)(6)||54,625||52,937||41,954|
|Average Sales Prices:|
|Oil, without realized derivatives (per Bbl)||$||57.15||$||61.44||$||46.25|
|Oil, with realized derivatives (per Bbl)||$||58.97||$||60.52||$||46.47|
|Natural gas, without realized derivatives (per Mcf)||$||3.77||$||3.38||$||3.42|
|Natural gas, with realized derivatives (per Mcf)||$||3.77||$||3.38||$||3.42|
|Oil and natural gas revenues||$||216.3||$||209.0||$||134.9|
|Third-party midstream services revenues||$||6.8||$||3.4||$||3.2|
|Realized gain (loss) on derivatives||$||5.4||$||(2.5||)||$||0.5|
|Operating Expenses (per BOE):|
|Production taxes, transportation and processing||$||4.02||$||4.17||$||4.06|
|Plant and other midstream services operating||$||1.45||$||1.18||$||0.80|
|Depletion, depreciation and amortization||$||14.02||$||13.87||$||12.38|
|General and administrative(7)||$||3.67||$||4.02||$||4.19|
|Net income (millions)(9)||$||17.8||$||59.8||$||15.0|
|Earnings per common share (diluted)(9)||$||0.15||$||0.53||$||0.15|
|Adjusted net income (millions)(9)(10)||$||55.7||$||46.1||$||17.8|
|Adjusted earnings per common share (diluted)(9)(11)||$||0.48||$||0.41||$||0.18|
|Adjusted EBITDA (millions)(9)(12)||$||155.4||$||137.3||$||84.8|
(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 $0.96, $0.99 and $0.34 per BOE of non-cash, stock-based compensation expense in the third quarter of 2018, the second quarter of 2018 and the third 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 IP test results from certain of Matador’s operated wells recently completed and turned to sales in the Delaware Basin. 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 third quarter of 2018.
|Completion||24-hr IP||BOE/d /||Oil|
|Asset Area/Well Name||Interval||(BOE/d)||1,000 ft.(1)||(%)||Comments|
|Antelope Ridge, Lea County, NM|
|Strong 14-24S-33E AR #214H||
|3,670||760||77%||Second excellent Wolfcamp A-Lower result in the Antelope Ridge asset area. Matador’s best 24-hr IP in the Delaware Basin.|
|Leslie Federal 17-25S-35E AR #214H||
|2,322||535||85%||Third strong Wolfcamp A-Lower result.|
|Irvin Wall State Com #131H||
|2,343||511||81%||Very encouraging initial Third Bone Spring result in the Antelope Ridge asset area.|
|Rustler Breaks, Eddy County, NM|
|David Edelstein State Com #203H||
|2,378||247||77%||Matador’s first operated 2-mile lateral well in the Rustler Breaks asset area; 90-day average production of 1,550 BOE/d.|
|Brantley State Com 13-24S-27E RB #205H||
|1,917||418||81%||Another strong Wolfcamp A-XY result in the Rustler Breaks asset area.|
|Wolf, Loving County, TX|
|Clare Glassell 71-TTT-B01 #204H||
|1,801||387||54%||Another excellent Wolfcamp A-XY well completed in the southern portion of the Wolf asset area.|
(1) 24-hr IP per 1,000 feet of completed lateral length.
Twin Lakes Asset Area, Lea County, New Mexico
Matador completed its Northeast Kemnitz #233H well, a Wolfcamp D test in the Twin Lakes asset area, in October 2018, and the well is still in the early stages of cleanup following completion. The Company plans to provide further details on the early performance of this well at a later date.
As previously reported, Matador also participated 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 26-15S-36E TL State #234H well. The Reed State #1H well, a two-mile lateral testing a shallower carbonate target in the Wolfcamp B interval, was also completed recently and is flowing back following completion. The Company also expects to provide further details on the early performance of this well at a later date. Matador owns an approximate 13% working interest in this well.
Midstream and Marketing Highlights
- As noted earlier in this release, in October 2018, a subsidiary of San Mateo entered into a long-term agreement with a producer in Eddy County, New Mexico for the gathering and processing of such producer’s natural gas.
- During the third quarter of 2018, San Mateo completed its fourth and fifth commercial salt water disposal wells in the Rustler Breaks asset area in Eddy County, New Mexico, resulting in a total of eight commercial salt water disposal wells (five in the Rustler Breaks asset area and three in the Wolf asset area) and approximately 225,000 barrels per day of total designed salt water disposal capacity. San Mateo expects to dispose of over 200,000 barrels per day of salt water as early as the first quarter of 2019, which includes expected volumes from Matador and San Mateo’s other contracted producers in Eddy County, New Mexico and Loving County, Texas.
- During the third quarter of 2018, San Mateo completed its oil gathering system in the Rustler Breaks asset area in Eddy County, New Mexico. The Eddy County oil gathering system and an associated San Mateo oil gathering facility are expected to be connected to an extension of an existing pipeline belonging to a subsidiary of Plains All American Pipeline, L.P. (NYSE: PAA) (“Plains”) being built northward from the Texas state line to Matador’s Rustler Breaks asset area. San Mateo anticipates that the Plains connection to its Eddy County gathering system will be completed in December 2018.
Delaware Basin Acreage Acquisitions
In addition to the BLM Acquisition, Matador also continued its “brick by brick” strategy for adding to its acreage position in the third quarter of 2018, acquiring approximately 12,600 net leasehold and mineral acres in and around its existing acreage positions in the Delaware Basin, including approximately 2,600 net mineral acres. Including the BLM Acquisition, Matador has added approximately 27,200 net leasehold and mineral acres in the Delaware Basin from January 1 through October 31, 2018, bringing the Company’s total Delaware Basin leasehold and mineral position to approximately 222,200 gross (131,200 net) acres at October 31, 2018. Matador has acquired its entire Delaware Basin leasehold and mineral position, including the BLM Acquisition, for an all-in weighted average cost of approximately $11,000 per net acre, excluding small amounts of production acquired.
Drilling and Completion Activities
During the third quarter of 2018, Matador continued to primarily focus on the exploration, delineation and development of the Company’s Delaware Basin acreage position in Loving County, Texas and Lea and Eddy Counties, New Mexico. Matador began 2018 operating six drilling rigs in the Delaware Basin and continued to operate six drilling rigs throughout the third quarter of 2018.
Mac Schmitz, 972-371-5225
Capital Markets Coordinator